2011 | World Finance

Renault spy case shows rising economic conflict

Posted on January 7, 2011 by

From what France calls “economic warfare” as it probes a Chinese link to industrial espionage at Renault to currency confrontation and commodity rivalry, economic conflict is increasingly impacting businesses. President Nicolas Sarkozy’s office has asked French intelligence to probe suspected industrial espionage at the car giant.

Renault suspended three executives at the start of January including a member of its management committee, with a source telling reporters the firm was worried its flagship electric vehicle programme – in which Renault together with Nissan is investing €4bn – might be threatened.

French industry minister Eric Besson told journalists the expression “economic warfare” was appropriate.

“What you’re seeing is a change in the nature of what war itself means,” Ian Bremmer, president of political risk consultancy Eurasia Group, told Reuters. “It’s not going to be so much a matter of bombs and missiles as deniable cyberwarfare, corporate espionage, economic struggles. That’s going to be a particularly difficult environment for Western corporates.”

Ultimately, he believes it will drive Western firms to build closer relationships with governments for protection to survive the rise of “state capitalist” powers like China and Russia.

Renault is far from the only suspected case. US cables released by WikiLeaks show diplomats blaming China for hacking into Google systems that prompted the internet giant to briefly quit mainland China.

Some analysts also suspect information theft may be helping China close the gap faster than expected as it builds a “stealth fighter” to rival Lockheed Martin’s F-22. Images posted on a number of websites showed what appeared to be a working Chinese prototype, although the US says China may still be years away from a truly working model.

Currency, commodity rivalry
Government-backed corporate espionage is nothing new. France itself has often been accused of doing much the same thing, including allegations of bugging business class seats on Air France jets in the 1970s and 80s. But the rise of emerging powers is seen quickening that trend.

It comes as the world’s emerging and developed nations continue to face off over relative currency strength and as growing demand for natural resources pushes food prices to record levels and oil back towards $100 a barrel.

Major powers are seen in increasing competition for resources. China – 4and to a lesser extent other emerging powers such as Russia, India, Malaysia, Brazil – have been expanding particularly in Africa. Beijing also says it will cut export quotas for its rare earth minerals vital to the production of much electronic technology, sparking a worldwide hunt for new sources. China produces some 97 percent of the world’s rarest elements, and the cut sent shares of producers elsewhere rising sharply.

While in state capitalist countries such as China and Russia the private sector, governments and intelligence agencies may be so close as to practically overlap, in western states they are much more divided.

“There is more attention being paid to the economic damage to national security but there is something of a disconnect between the US government and the private sector,” said Nikolas Gvosdev, professor of national security at the Naval War College in Rhode Island.

“The perception is (still) that the government handles ‘defence’ and the private sector handles ‘economy’.”

Corporate espionage “easy” for spies
Others say that while the rise of new economic powers will mean intelligence agencies shift some focus towards them, the main effort will remain preventing militant attacks rather than on corporate matters.

“I doubt this will become a priority for UK agencies other than defensively,” said a former senior British intelligence official on condition of anonymity.

“The UK is not by tradition state corporatist and there is likely to be little inclination to do the private sector’s work for it. Hard to say for other Western states as it is more a matter of political philosophy than capabilities – corporate espionage lies at the easy end of the spectrum.”

The WikiLeaks saga in which it is alleged one youthful US Army private managed to download the entire war logs for Iraq and Afghanistan as well as more than 250,000 diplomatic cables shows how the information age makes secret data easier to steal in vast quantities – particularly if one has an inside source.

Emergent Asset Management – one of the first funds to start buying up farmland in Africa to tap rising food prices – believes rising tensions will ultimately lead to war. It is launching a new fund later this year to track political strains.

Executive Recruitment Awards 2010

Posted on January 5, 2011August 8, 2019 by Ashton Wenborn

Executive Recruitment Company of the Year – Argentina
Boyden

Executive Recruitment Company of the Year – Austria
Signium

Executive Recruitment Company of the Year – Belgium
Lancor

Executive Recruitment Company of the Year – Brazil
Fesa

Executive Recruitment Company of the Year – Canada
Davies Park

Executive Recruitment Company of the Year – Chile
CT Partners

Executive Recruitment Company of the Year – Colombia
Korn Ferry

Executive Recruitment Company of the Year – Czech Rep
Krajiceck Associates

Executive Recruitment Company of the Year – Denmark
SAM Headhunting

Executive Recruitment Company of the Year – Finland
Boyden

Executive Recruitment Company of the Year – France
JMB

Executive Recruitment Company of the Year – Germany
Odgers Berndtson

Executive Recruitment Company of the Year – Greece
Intersearch

Executive Recruitment Company of the Year – Hong Kong
Michael Page

Executive Recruitment Company of the Year – Hungary
EastEuroCo

Executive Recruitment Company of the Year – India
Russell Reynolds

Executive Recruitment Company of the Year – Italy
ASA Amrop

Executive Recruitment Company of the Year – Mexico
Stanton Chase

Executive Recruitment Company of the Year – Netherlands
Financial Assets

Executive Recruitment Company of the Year – Norway
EWK

Executive Recruitment Company of the Year – Peru
Tasa Worldwide

Executive Recruitment Company of the Year – Poland
Egon Zehnder

Executive Recruitment Company of the Year – Romania
George Butunoiu

Executive Recruitment Company of the Year – Russia
Alexander Hughes

Executive Recruitment Company of the Year – Serbia
Pedersen & Partners

Executive Recruitment Company of the Year – Singapore
Profile

Executive Recruitment Company of the Year – South Africa
Odgers Berndtson

Executive Recruitment Company of the Year – Spain
MC Asociados

Executive Recruitment Company of the Year – Venezuela
Maxecon-Signium

Demand grows for African assets

Posted on January 5, 2011 by

The most important fact for any investment in any country within the African space is that they have someone on the ground 352 days a year monitoring and mentoring investment companies. At Wentworth International we have made two recent investments, the first being a natural resources company in Sierra Leone and the second in a UK registered company which has a 100 percent focus on Africa, with operations in both the east and west of the continent. We aspire to mobilise funds from international and African investors for deployment in the fast growing economies of Africa with an estimated GDP of $2trn. Investors realise that Africa is underpenetrated with untapped potential and provides interesting opportunities for investment growth returns for any investor willing to take the time to understand and pursue opportunities within this continent. To unlock this potential, FDI must be attracted to augment the low local investment and thus far, the private equity model has been used to satisfy these needs for capital.

Opportunity knocks for PE
We all hear about the BRIC countries but the smart investors are already moving on. These are the people who always drink ‘up river,’ the investment community who get in earlier than anyone else and those who make the greatest returns. We are seeing a whole range of new businesses to develop, focused on Sub-Sahara and North Africa. Those in the know are seeing exciting opportunities with Wentworth International. It is this new perspective that makes our business of so much interest. So the world’s leading investors are turning to Africa, the only major area of the world left to develop. Africa presents very strong fundamentals that underpin its growth prospects over the coming decades and by all standards is the prime investment area especially for those who would like to tap into its vast resources. Land as a resource is easily available for serious investors either through private purchase or through allocation by governments, some of whom are ready to attract potential investors by offering free or subsidised land in addition to giving tax breaks and holidays especially for investors whose proposals indicate they can generate employment and raise income for the country. Apart from land, Africa is emerging with a strong base of well trained human capital not only in technical areas but also in management and supervisory tasks and jobs. Most African countries have adequate skilled and semi-skilled human power at their disposal and the majority of these are yearning for employment. The continent has a population of 800m people (half of whom are under the age of 16) who have comparatively little infrastructure or telecommunications access. On the back of this, it is undergoing unprecedented economic growth with the World Bank forecasting a real GDP growth rate of 5.1 percent for Sub-Saharan Africa in 2011, versus 1.3 percent for the eurozone. This combination is leading to increased urbanisation giving rise to a growing aspirational middle class with improved levels of disposable income that are driving the demand for products and innovations. As a result, we can record a rise in the demand for consumer goods and services; this is enhancing the necessity for investment across traditional products and services. The sectors that are benefiting from this move include telecommunications, agribusiness, the financial and business services, real estate and basic industrial production.

Natural resources
In addition to land and human capital, many countries in Africa boast significant natural resources, which can be developed in a sustainable manner. These include wildlife and related tourist attractions, fresh water lakes, rivers, seas and coastal areas with marine and aquatic resources. Some countries have vast mineral resources waiting to be explored and developed such as oil and precious metals – Africa has 21 percent of the world’s gold and 46 percent of the world’s diamond deposits, as well as copper and iron ore).

Land investments excite Wentworth International, especially in terms of agriculture. Indeed this is a dilemma that a continent with such high potential for agricultural yields has high food insecurity and frequent food shortages and famine, necessitating importation of food items from outside the continent at high costs. There is therefore a need to invest in the agricultural sector and those who venture into this will not only reap good returns but help Africa solve its chronic food problem.

Industrial investment in Africa is still very low compared to other regions of the world and yet with the growing economy of this region and the growing population, coupled with a fast urbanisation process, puts Africa ahead of other regions of the world in terms of prospects for future industrial investment, growth and in terms of potential for industrial goods market expansion.

In conclusion, there are many prospects for investment in Africa and it is in this regard that Wentworth International Partners was established. Wentworth’s objective is to focus on early stage companies that attribute more than 75 percent of their revenues from Africa within growth sectors exhibiting a clear upside potential.

We invest opportunistically, using a disciplined approach for selecting investments generated from a proprietary pipeline through long-standing relationships with key players in the region. Our mission is to be the leading premier Pan-African Investment Company with the vision to target investments in high-quality early stage enterprises with potential for regional growth. We seek to create successful partnerships with companies’ management in a variety of sectors; in order to create value for our shareholders while generating positive returns.

Wentworth International Partners is a company driven to find strong investments in Africa and support those with a positive vision for the country and her people.

Joyce Ollunga is CEO of Wentworth International Partners, the Nigeria-based investment company. For more information www.wentworthinternational.com

Mobilising impact finance

Posted on January 5, 2011 by

World population is estimated at 6.8 billion people, of which close to two billion live in poverty, 925 million are undernourished, 2.6 billion lack basic sanitation, about one billion can’t read a book or sign their name and 443 million school days are lost each year due to water-related illnesses. Yes, the percentage of population living in poverty has been substantially reduced in recent decades, but China alone accounts for most (close to 90 percent) of the world’s poverty reduction since 1981. What’s more, staple food prices are increasing, while income inequality is rising: the poorest 40 percent of world population account for five percent of the world’s income, and 80 percent of the world’s population live in countries where income differentials are widening.

On the environmental front, global CO2 emissions have risen by 20 percent since 1997, with no post-Kyoto agreement in sight and the 2012 deadline fast approaching. To ensure global temperatures don’t rise by more than 2°C above pre-industrial levels, G8 countries would need to cut their emissions by 80 percent by 2050, which translates into investments of $1trn a year, of which $475bn is transfers to the developing world to help it adapt to climate change. Furthermore, the Kyoto framework does not cover deforestation, which is responsible for some 13 percent of CO2 emissions.

Impact finance seeks to address these imbalances by providing an expanding universe of profitable investment opportunities to investors, yielding double or triple bottom line returns.

Public sector needs the private sector
The world is progressively recovering from the financial crisis and a two percent contraction of the global economy in 2009. But the rising debt and need for budgetary cuts faced by most OECD governments has effectively shifted much of the burden of sustainable development funding to the private sector.

Total net official development assistance (ODA) from the OECD amounted to $122bn in 2008, representing 0.3 percent of the combined Gross National Income (GNI) of OECD donor countries. It fell short of the 2010 target of 0.36 percent of GNI to stay on track with the Millenium Development Goals (MDGs), let alone the 0.7 percent of GNI required in order to achieve the MDGs by 2015.

Private sector mobilisation is therefore essential to complement the development efforts of the public sector. According to 2008 data published by the Hudson Institute, private giving to developing countries reached $34bn from the US and $15bn from 13 other countries including most of Western Europe. That same year, remittances to developing countries totalled $325bn (World Bank), and foreign direct investments to developing and transition countries amounted to $735bn (UNCTAD 2009). In fact in 2008, says the Hudson Institute, “Global philanthropy, remittances, and private capital investment accounted for 75 percent of the developed world’s economic dealings with developing countries.”

Investment industry reengineering
With $111trn in global assets under management worldwide as of December 2008 (BCG 2010), the capital market pool is too large a resource to be ignored by sustainable development proponents. Some 6.3 percent of these global financial assets are invested in socially responsible investments (SRI), while more than 800 signatories managing $22trn subscribe to the concept of sustainability, broadly endorsing the United Nations Principles for Responsible Investment. Yet most of the actual practice focuses on doing little or no harm, and rarely provides the opportunity to measure the precise social and environmental impact of investments. Impact finance may be a good response to this quandary. It presents financially appealing investment solutions across asset classes, and funds viable and often scalable solutions for microfinance, affordable healthcare, education, alternative energy, and sustainable agriculture. As Bridges Ventures noted in 2009, “the sector stands poised both to address significant social and environmental issues and to chart a new course for the financial services industry to reclaim its stature as an engine of social and economic upliftment.”

Impact finance market
Impact finance was valued at $50bn in April 2010 by the Global Impact Investing Network (GIIN), which expects it to grow to $500bn by 2014. According to another forecast, “Over the next five to 10 years, impact investing could grow to represent about one percent of global assets under management” (Monitor Group 2009). But more recent data indicates impact finance may encompass financial assets worth up to $297.2bn already.

In December 2009, CGAP numbered 91 active Microfinance Investment Vehicles managing $6.2bn, a 25 percent growth over 2008, predominantly composed of mostly de-correlated and low-volatility Fixed Income, with an average return of USD Libor +250 bps in 2009. The ranks of microfinance borrowers have increased by 91 percent per year from 2004 to 2009 (Intellecap 2010), reaching $40bn in gross loan portfolios, and 2.5bn adults still don’t have access to financial services (McKinsey 2010).

Community investing in the US was valued at $41bn at the outset of 2010. As for sustainable agriculture, fair trade sales were valued at $4.2bn worldwide in 2009, a 15 percent growth over 2009 (Fairtrade Labelling Organisation 2010).

As for sustainable agriculture, fair trade sales were valued at $4.2bn worldwide in 2009, a 15 percent growth over 2009 (Fairtrade Labelling Organisation 2010). Regarding carbon finance, another impact investment segment, CDC identified 96 carbon funds with a total capitalisation of $16.2bn, in Equity and Private Equity vehicles mostly, while UNCTAD estimated FDI flows into renewables, recycling and low-carbon technology manufacturing amounted to $90bn in 2009. The global carbon market is worth $122bn, mostly thanks to the EU Emissions Trading Scheme (The Economist 2009), with an additional $163bn from green subsidies (New Energy Finance 2009).

Impact investing is attracting all types of investors: 19 European pension funds have disclosed microfinance investments of $555m (OnValues 2009), and Toniic, the US impact investment club, will launch its European chapter in 2011. Toniic was co-founded by RSF Social Finance, which since 1984 has provided social enterprises with $200m in loans, and the KL Felicitas Foundation, which has pledged its entire endowment to impact investing.

Impact finance hurdles
According to a recent survey by AlphaMundi Group, this new investment approach still faces a number of hurdles: a short history, a lack of standardisation and access to information, insufficient investor awareness and product benchmarking, liquidity constraints, and a more comprehensive regulatory support are all challenges being progressively resolved by the industry.

Further findings reveal that most impact finance asset managers specialise exclusively in this new type of investment, using debt and PE/VC instruments to fund deals of $1m on average (AlphaMundi 2010). They can broadly be assigned to two categories, the first composed of impact finance pioneers with at least six years of track record and $100m or more in assets, the second made up of new market entrants with less than five years of experience and under $20m in assets. Only half of the interviewees disclosed their financial performance, which on average was superior to five percent per annum for debt instruments and 10 percent per annum for PE in 2009. Half of the managers charge at least two percent management fees, and additional performance fees of 20 percent on average with a hurdle rate of six percent or more, to cover the costs of due diligence which typically takes three months from deal identification to disbursement, and of monitoring and reporting thereafter. Leveraging resources through co-investment could be a solution to reduce transaction costs, but only a small minority had ongoing co-investments at the time of the survey. All the interviewees invest directly into projects or impact enterprises, while half also invest through funds. The regions of greatest interest for the foreseeable future include Asia ex-Japan, Africa and Latin America. Interestingly, most impact finance managers expect microfinance to be supplanted by sustainable agriculture and alternative energy as the primary sectors of impact investment.

With regards to impact measurement, less than half of the interviewees used systematic measurement processes, and in most cases they do so in-house with a customised methodology. About half impact finance asset managers believe it would be useful to establish industry-wide label for impact investing, to catalyse market growth and facilitate fundraising, and 75 percent of them would be willing to contribute data to enable such a label should it exist. Fundraising is the second largest driver of cost for impact finance managers, after the expenses of investment screening and monitoring. Like any new industry, a majority of interviewees think it necessary to broaden investor awareness and appeal through special tax incentives, and AlphaMundi is now working with leading stakeholders across countries to secure sufficient regulatory support and crowd in the private sector.

Regulator support
Regulator response to this emerging investment approach is eclectic. According to the Council of Europe, 40 percent of its Member States have initiatives related to ethical finance, but only 20 percent have created a legislation supporting this type of activity. At the European Union level, three initiatives related to ethical finance are still pending approval, related to the need for companies to publish social and environmental assessments in their annual reports, and to the need of pension funds to disclose their ethical investment policies. More specifically, in the Netherlands, a 1995 directive on green investments paved the way for both revenue and capital gain tax rebates for sustainable, cultural, social, microfinance or developing country investments. In the UK, pension funds must integrate sustainable investment principles in their investment charter since 2000, and in March 2010 the government pledged $120m (£75m) to create a Social Investment Wholesale Bank in 2011. In the future, the bank may channel dormant assets to social enterprises in the UK and abroad. In Norway, the leviathan Government “Petroleum” Pension Fund was established in 1990 and currently manages $450bn and holds one percent of global equity. The Petroleum Fund has adopted new ethical guidelines and a green investment program in 2010. Belgium incorporated a private investment company in 2001, BIO, to channel €346m to date to SMEs and microfinance institutions (MFIs) in developing countries. BIO also provides grants and guarantees. Similarly in Switzerland, the government established the Swiss Investment Fund for Emerging Markets in 2005, which has channelled more than $400m to SMEs in 30 developing and transition countries to date. In Italy, the Central Bank supported the establishment of Banca Popolare Etica, which today manages a sustainable finance portfolio of €645m in savings and €601m in loans.

In turn, Banca Popolare Etica co-founded the European Federation of Ethical and Alternative Banks association. More recently in the US, the Obama administration announced the launch of a new funding facility for MFIs with an initial capitalisation of $150m in 2009, and gave a strong endorsement to the establishment of a Global Impact Investing Rating System (GIIRS). Last but not least, in Luxembourg a consortium of institutions, including the European Investment Fund, Banque de Luxembourg and Ernst and Young, presented a series of policy recommendations for the government to adopt supportive measures for the growth of impact finance in Europe as of 2011.

Impact finance outlook
The outlook for the growth of impact finance seems to hold much promise. The public sector needs private sector funding to co-finance the sustainable development solutions the world requires. It is imperative that we as a global human society adapt before certain tipping points are reached, be it in environmental degradation, hunger and illness or loss of human life, or inequality, poverty and failed states.

Impact finance complements the array of ODA, philanthropy and FDI instruments for development, and unlocks new sources of capital by blending financial returns and social incentives. As the numbers attest, both institutional and private HNWI investors have already begun including impact finance products in their investment portfolios, across private equity, equity and debt, and thereby contribute to the sector’s growth and emerging standardisation.

Tim Radjy is CEO of AlphaMundi Group. For more information www.alphamundi.ch

World Bank: Agriculture leads poverty reduction

Posted on January 5, 2011 by

There is enormous agricultural potential in many parts of Africa. All the necessary natural conditions – good soils and climate, plenty of land and water – are present in many countries. There is no reason why Africa cannot be a major producer of agricultural products on a scale equal to that of South America. But it will take heavy investment by the private sector to realise this potential, and the reality is that there has not been nearly enough of it. As a result the potential remains largely unrealised.

Rapid growth of agriculture is the most effective means of reducing poverty in Africa. According to the World Bank the poverty reduction impact of growth in agriculture is three times greater than comparable growth in any other sector. But since there has not been rapid growth in agriculture the opportunity to reduce poverty has not been grasped. Rural Africa remains extremely poor.

Why has there been so little private investment in agriculture? It is certainly not a lack of finance per se. There is more international interest in investing in Africa now than ever before. New private equity funds focused on agriculture in Africa are searching for viable investment opportunities. The development finance institutions have under-utilised their capital allocations for agriculture in Africa for many years.

The real problem is not lack of finance – it is lack of sufficient profitable opportunities in which to invest. The reason is straightforward: agriculture in Africa is an infant industry. It lacks the infrastructure required for commercial agriculture – such as water supply for irrigation, electricity supply to the farm gate and feeder roads to access markets. It has to incur start-up costs such as land clearing and trial planting, costs which do not have to be borne by its competitors. It lacks experienced managers and a trained workforce resulting in lower productivity and higher labour costs.

Above all infant industry by its very nature operates on a small scale and therefore does not benefit from the economies of scale available to international competitors. As a result in many cases unit costs are high and expected returns are low. Furthermore early stage agriculture is very risky. This raises the minimum return required by private investors. With low expected returns and a high risk-adjusted cost of capital it is not surprising that many early stage opportunities are not attractive to private investors.

But if the infant industry can ‘grow up’ there is no reason why it cannot be internationally competitive. As the infrastructure platform is strengthened and the benefits of scale economies and ‘learning by doing’ drive down costs, as the industry grows in size and matures over time, the returns on new investment will be attractive to private investors.

The challenge for the international community is how to get things started: how to deploy development assistance resources in ways that will overcome the barriers to entry, resulting in rapid growth of profitable commercial agriculture and thereby a rapid reduction in poverty.

Successful interventions should: be targeted at the market failures which create the barriers to entry; be catalytic, levering-into African agriculture new private investment in amounts many times greater than the amount of donor funding; and be time limited so that over the medium term public funds can be withdrawn, replaced with private capital and the proceeds re-invested in new early stage ventures.

The key to success is patient capital. Patient capital is long-term, low-cost, subordinated capital provided by donors and invested in the early stages of private sector agricultural ventures. It would be used to finance start-up costs, to part-fund the cost of infrastructure (such as irrigation assets) and to part-fund working capital required by small and medium-size enterprises (SMEs) and smallholder farmer organisations (SFOs), these being sponsors who would not otherwise be able to secure sufficient working capital from banks.

The long tenor and low cost of patient capital reduce unit production and delivery costs in the early years. This increases the incremental return on private investment in the venture. Subordination of patient capital reduces the risks faced by private investors. The result is to shift the opportunity ‘above’ the line in figure 1 making it attractive to private investors.

Patient capital should have ‘upside’ sharing to ensure that funders share in any unanticipated upside; and should be secured on the assets in the business to ensure that there are consequences for sponsors if they fail to comply with the conditions on which the funding was made. Conditions should always include undertakings to help integrate smallholder farmers into agricultural value chains and provide them with access to infrastructure on affordable terms.

Patient capital deployed in this way would be catalytic, levering-in large amounts of new private investment, and it would also bring transformational benefits for smallholder farmers, taking them out of poverty ‘at a stroke’.

How can patient capital best be deployed? The best approach is to create a public/private equity fund in which public sector donors (and private sector foundations and social impact investors) fund a tranche of patient capital and private investors fund a tranche of private equity expected to generate commercial returns. The low cost of the patient capital would lever-up private equity returns and the subordination would reduce the risks. The fund would invest both patient capital and private equity into a portfolio of early-stage agricultural ventures.

The fund would differ from a standard private equity fund in several respects. First the governance: the fund would have dual objectives. To invest in early-stage agricultural ventures that are expected to be socially and environmentally sustainable and generate commercial returns on the private equity tranche; and to deliver explicit poverty reduction objectives framed in terms that are quantifiable and can be monitored. The investment committee, made up of nominees of the funders of patient capital and private equity, would be responsible for ensuring that both of the fund’s objectives were met. Second, the incentives: the fund manager would be remunerated for achieving success which in this case means delivering the outcomes sought by both the patient capital and private equity funders. Remuneration should be linked to both the financial performance of the fund and the delivery of specific targets relating to development impact and poverty reduction.

As well as patient capital there is a need for two additional development assistance instruments. The first is social venture capital (sometimes called catalytic funding). This is concessional funding from donors used to co-invest alongside SME and SFO sponsors to make a greater number of very early stage opportunities ‘investment ready.’ The experience of InfraCo and AgDevCo shows that small amounts of social venture capital invested pre-financial close can not only be highly effective in catalysing additional private investment but also in structuring investments so that they achieve high development impact and strongly pro-poor outcomes.

The second is partial risk loan guarantees. Sponsors must have access to committed credit lines to fund working capital as well as equity if they are to grow their businesses rapidly. Debt providers are extremely nervous about extending credit to early-stage agricultural ventures when the sponsor has limited track record and collateral. The solution is partial risk loan guarantees which are instruments that transfer some of the credit risks from the lender to the guarantor for a fee. There are a number of credit guarantee facilities operated by donor agencies which perform this role including the USAID DCA programme and Guarantco, a public private partnership facility funded by European governments. However, if credit to support rapid growth of early stage agriculture is to be sufficient there is a need for more loan guarantee capacity, greater willingness to take risk positions on early-stage agricultural ventures with SME/SFO sponsors and pricing that recognises the need to keep the cost of capital as low as possible in the early years.

Social venture capital invested in the very earliest stages creates a larger number of investment ready opportunities. It is withdrawn as soon as possible after financial close and reinvested to create more investment ready opportunities elsewhere. The patient capital fund invests a blend of patient capital and private equity at financial close. Over time the patient capital is withdrawn and replaced with private equity. Loans made at financial close benefit from partial risk loan guarantees but over time as the guarantees lapse and lenders become more comfortable with the sponsors they extend new credit lines without loan guarantees. Once the infant industry has grown into a mature, profitable industry, all the finance required to continue to grow will come from the private sector.

In conclusion, there is a real opportunity for the international community to catalyse large-scale private investment and realise the great agricultural potential of Africa. In doing so, it will meet its primary objective of reducing poverty. It will also contribute to addressing the global food security agenda and to increasing the resilience of Africa to the consequences of climate change. That really would be effective aid!

Keith Palmer is Chairman of AgDevCo and InfraCo. For more information www.agdevco.com

Shared norms for the new reality…

Posted on January 5, 2011August 6, 2019 by

Since 1971, the WEF has held its annual meeting in Davos-Klosters in Switzerland. Between 26-30 January 2011, key world leaders, including stakeholders from the business community, global governments, science, the media, religion and the arts – as well as members of civil society – will convene to discuss and form initiatives to address the most critical issues facing the world.

The annual meeting provides a forum to consider the mechanisms of existing ways of operating, as well as to examine potential new strategies that can have positive effects for the global community. The 2011 meeting will place particular emphasis on addressing the question of ‘how’ – that is to say going beyond theoretical debate by creating tangible ideas and feasible solutions to key global challenges.

Aims of the 2011 meeting
The theme for the World Economic Forum Annual Meeting 2011 is founded on four main pillars:

i) Responding to the New Reality
The New Reality can be defined as a world with many centres of power, characterised by a high degree of volatility and the frequent entrance and exit of players in an increasingly competitive global market. It also embodies rapidly-changing patterns in social behaviour, a worldwide dearth of commodities and natural resources, the changing nature and the role of governments, as well as new social and environmental demands on business.

There is a genuine need to anticipate and identify changes in the global balance of power. Furthermore, as economic interdependencies continue to deepen, business models mature, and new and disruptive technologies are devised, there is an increased pressure on global leaders to find ways of handling these challenges. Attendees of the 2011 annual meeting will gain a keen insight into these issues and – more importantly – will be given the opportunity to shape aspects of this New Reality.

ii) The Economic Outlook and Defining Policies for Inclusive Growth
Whereas the world is currently in economic turmoil, nonetheless a total meltdown of global financial and economic systems has been avoided. There remains, however, much uncertainty as the world continues to pay the price for pre-crisis exuberance and irresponsible behaviour. Economists and industry commentators alike are uncertain as to whether inflation or deflation will be more damaging for the global economy. Also, the old question of a double-dip recession still hangs like the sword of Damocles. Finally, now we are more used to the term ‘trillion’ than we are ‘billion’ when discussing the state of the global economy, there is growing concern for the fate of our future generations.

iii) Supporting the G20 Agenda
The future impact of the G20 depends upon its ability to safeguard the recovery and build the foundation for sustainable and balanced growth. There is also a pressing need to make international financial systems more resilient to risk. Overcoming these issues, together with ensuring that a clear set of values is shared among global communities, is a crucial step in building a more stable society. The G20 is one of the most important institutions in existence today when it comes to defining a new governance and multi-national leadership model following the global crisis.

Critical to achieving success in these areas also requires participation from economies outside the G20, specifically from those industries that play a major role in the creation of employment opportunities and market stability. Therefore, the G20 agenda should also look at the need for greater inter-dependence between the business community and governments and there is a great deal of work to be done to rebuild a partnership between business and governments.

Such initiatives are important to ensure global business remains innovative, enterprising and is able to sustain its ability to generate jobs. Similarly, they are essential in ensuring that governments do not become too engulfed by internal issues and constraints that they do not have the capacity to perform their key role of exercising global leadership. To this end, the 2011 annual meeting plays a major role, not only in promoting the issues on the G20 agenda, but also ensuring a high degree of public awareness of these vital issues.

iv) Building a Global Risk Response Mechanism
In an increasingly globalised society, it is impossible to avoid systemic and natural risks, but it is vital that global leaders are better prepared when it comes to risk-responsiveness, risk-awareness, preparedness and risk mitigation. Now more than ever it is crucial to share ideas and insights if the world is to respond effectively to these challenges. The understanding of systemic weaknesses can help bridge the gap between emerging risks and the ability to understand and respond to these risks.

Today, there is no formal system in place that offers the opportunity to share the best expertise and experience globally, so that all nations can make the best possible decisions when faced with a crisis. In order to help create such a system, the 2011 annual meeting will launch what will be known as the Global Situation Space, which will hopefully help all nations better understand and respond to endemic risks.

The wider agenda
In addition to these specific aims, the 2011 annual meeting will also place a number of ongoing points high on its agenda:

i) Energy Poverty Action
A joint initiative of the World Business Council for Sustainable Development (WBCSD), the World Energy Council (WEC) and the World Economic Forum, the Energy Poverty Action (EPA) partnership was launched at the WEF’s 2005 annual meeting and remains an ongoing concern. The EPA’s aim is to help develop scalable solutions to energy poverty and to cater for energy demand in areas that are currently not plugged into utility grids.

The inability to access sustainable modern energy services is something that affects many under-developed nations and in fact acts to constrain their growth and development. Globally, it is estimated that around three billion people lack access to sustainable and affordable modern energy, with the majority still dependent on traditional fuels – which in itself further diminishes the world’s natural resources and undermines the sustainability of rural communities.

Energy poverty affects poor people in every world region but nowhere more than in central and southern Africa. Here, in urban areas, access to electricity is limited to just 25-30 percent; but more strikingly, in rural areas, this figure is just six percent. To put this into perspective, almost three-quarters of Africa’s 700m people live in the rural areas of Africa.

The EPA’s approach to tackling these issues is to invest in local entrepreneurs and communities, providing them with both technical and financial resources to enable them to build and manage sustainable community-based energy companies. The EPA’s strategy is to encourage private investment to establish energy sources, especially for communities. Following this, public financing can be sourced to cover the ongoing costs required for technical assistance and the development of additional capacity.

The EPA partnership has to date achieved three key objectives. It has:
– Established a not-for-profit company that – alongside governments – jointly identified energy programmes and provides professional services to help implement each programme.

– Implemented a pilot electricity project in Lesotho and has rolled out additional programmes in the southern regions of Africa.

– Created a private-public funding model that can leverage public resources to tap into significant pools of private funding.

All told, if it is possible to demonstrate the commercial viability of such schemes, the EPA hopes to be able to encourage more entrepreneurs to come on board to help fund further initiatives. In short, the problem of access to energy supplies in rural areas is too big to be handled purely by public resources, and as such the intervention of the private sector is vital.

ii) The SlimCity Initiative
Launched at the 2008 annual meeting, the SlimCity Initiative aims to create a global forum wherein city governments and private sector organisations can exchange ideas on best practices in order to deliver resource efficiency within global cities. The focus of this exchange is firmly on the sustainable development of all aspects of a city, in order to achieve a reduced carbon footprint and increased resource efficiency. The initiative has a particular emphasis on the energy, mobility, engineering and construction, chemicals, real estate and IT industries.

The four cornerstones of the SlimCity Initiative are:

Smart grids
Smart grids offer huge benefits in terms of energy efficiency. They are also integral to the development of renewable energy, electric vehicles and new energy services. The so called digitisation of electricity looks set to become the core of the energy solutions and the low-carbon economy of the future.

Re-powering transport
The objective of the WEF’s Re-Powering Transport project is to enable the adoption of clean and secure energy sources for the purpose of transportation. This project brings together executives from the WEF’s Industry Partnership programmes across three of its defined sectors, namely: mobility (automotive, aviation and logistics), energy (oil and gas, utilities, alternatives) and chemicals. The project also looks at related areas including alternative fuels, energy efficiency, and electric transportation.

Retrofit financing and investment
Commercial and domestic buildings represent 40 percent of the world’s energy requirements, but with the world’s building stock currently turning over at a rate of only 5 percent per annum, and with new construction having been put virtually on hold, achieving reductions in energy use and carbon emissions largely depends on retrofit investment. A concept born out of the WEF 2010 annual meeting, the Retrofit Finance and Investment project aims to encourage collaboration between all parties within the construction industry to engender reduced emissions via retrofit.

Housing for all
This project gives industry leaders and experts the opportunity to voice their opinions on what they believe to be the most pressing current challenges and opportunities facing the world’s lower-income housing market. The WEF’s aim is to raise awareness of the issue of sub-standard housing within the global business community, track the issue on both a business and an economic level, and to report on suggested best practices and proposed government policies – principally those that create incentives for the private sector to become involved.

The SlimCity Initiative has an ongoing obligation to raise awareness and encourage communication in the field of urban sustainability and best practices between cities and the private sector. To date, the Initiative has registered some key successes, such as the development of SlimCity knowledge cards to identify key trends and best practices in the areas of smart energy, urban mobility and sustainable construction. These cards have been employed to enable high-level city workshops on urban sustainability across the world, in Chicago, San Francisco, Melbourne, London, as well as at global level discussions at the ICLEI World Congress 2009 and the World Bank Dialogue on Cities and Climate Change, 2009.

iii) The Disaster Resource Partnership
The number of natural disasters occurring globally each year has more than doubled in the last 30 years, due to a number of factors including climate change, a growing population base and increased urbanisation. As a result, it is estimated that in excess of 250m people are affected by natural disasters each year. In response to this, it is predicted that over the next few years the humanitarian response to such disasters will dramatically increase to a point where it becomes extremely difficult to manage. The recent earthquake in Haiti has highlighted the increasing importance of humanitarian assistance to natural disasters.

In recent years there has been a marked shift in the perception of the private sector in dealing with natural disasters. It has been one from donating money to help reduce the suffering in the aftermath, to one that actively helps deal with the consequences of the event. The private sector also has a great part to play in helping mitigate the risk of disaster both through prevention and preparation.

Examples of ways in which the private sector can help include:
– In the immediate aftermath of a disaster, a construction company already operating in the affected area is well placed to contribute labour, materials and equipment, and can also draw on networks and supply chains that can save lives.

– Following a natural disaster, the engineering and construction industries have specialised knowledge and technical expertise that is essential to the reinstallation of key infrastructure in the affected areas. Also, these industries can provide services such as damage assessment and seismic surveys in addition to helping with the project management of the rebuilding procedure.

– Finally, by involving engineering and construction firms early on in the relief and recovery processes means that they can contribute strategically to future planning and reconstruction, hence playing a critical role in minimising the effects of potential future disasters.

The WEF appreciates that one of the key things required is a revitalised understanding of the crucial role that the private sector can play in responding to natural disasters. As such, the WEF has established the Disaster Resource Partnership, a body that helps maximise the core strengths and existing capacities of the global engineering and construction community, so that resources can be rapidly deployed in the event of a crisis.

Equal billing
Shared Norms for the New Reality is a fitting maxim for the WEF’s 2011 annual meeting, as it seeks to bring together the shared values required to embrace a changing world that for the last 12 months has had its hatches battened firmly down as it tries to weather wave after wave of economic turmoil. However, Davos 2011 will not just focus on the current global financial crisis, and its enduring spirit of Entrepreneurship in the Global Public Interest assures us that the perennial global issues of poverty, energy and natural disaster relief will also take centre stage.

Lontohcoal set for IPO

Posted on January 5, 2011 by

With some of the best engineers and geologists at its disposal and guided by a clear long-term business strategy, Lontohcoal is gearing up to become a major coal producer in Southern Africa. Add to this the acquisition of some of the mouth-watering assets in South Africa and Zimbabwe, Lontohcoal is on course to become a significant player in the coal industry in the next few years.

Established only three years ago, this South African coal mining company is going places. With flotation on the Hong Kong stock exchange planned for next year, this young company is destined for great things. Interviewed by South China Morning Post in October, Lontohcoal chief executive Tshepo Kgadima explained that “we are planning an IPO on the Hong Kong stock exchange in the first half of 2011. We are looking to raise $300m-$500m. Our advisors say the company is worth up to $1.5bn.” Samsung Securities (Asia) is advising Lontohcoal on its fundraising options and IPO plans.

Lontohcoal has three main assets in South Africa and one in Zimbabwe. The first is the Kwasa Anthracite Colliery, located on the north east of the town of Piet Retief in the province of Mpumalanga, South Africa. The mine is operational and is being developed to produce 70-80,000 tonnes per month. The second is Hlobane Colliery, situated in the small town of Vryheid in the KwaZulu Natal province of South Africa. This mine will be developed to produce 1.2m tonnes of anthracite per year, making it potentially the largest producer of anthracite in South Africa. The last of the South African assets is Lephalale, situated in the mineral-rich province of Limpopo, South Africa.

The asset in Zimbabwe is in Lubimbi, in Northern Matabeleland. The Lubimbi deposits are particularly important for the South African mining company. Over and above the cost effective methods demanded by open cast mining in this area, the lifetime of the Lubimbi mine is estimated at around 200 years, causing the company to look at long-term operational options. Engineers are currently engaged in scoping studies examining the feasibility of constructing a power plant and a coal-to-liquids plant at the site. When these plans are successfully implemented, not only will this make the company a significant player in the industry, it will mean a lot in terms of infrastructure development and job creation for communities living in the vicinity of the mine.

With a great sense of urgency and a stubborn determination to succeed in a sometimes hostile environment, Lontohcoal has been very busy in Lubimbi. Led by the soft-spoken former investment banker Tshepo Kgadima, the company has accomplished a lot in the past year. “We went on an aggressive drilling and exploration programme in Lubimbi, Zimbabwe, doing more drilling in just three months than had been done on the site in the last 30 years. As a result of this work, we have been able to add over 7.2bn tonnes of coal onto our reserves and resources. Of this, 1.3bn tonnes can be mined by open cast methods, and 35-40 percent of that will be coking coal,” explained Kgadima.

Aware that the biggest challenge facing any new mine is how to get the coal to the end user, Lontohcoal is currently engaged in feasibility studies to quantify the investment that will be required to create a suitable transport infrastructure. The company is budgeting on this work taking around three years. Meanwhile, the company is finalising a transaction to acquire a 51 percent stake in a port concession in Maputo, Mozambique, which will provide storage capacity for 800,000 tonnes of coal. All that is required is to increase the loading capacity on-site. This is the measure of the level of planning done by this emerging miner to become a serious player in the mining industry in the region.

With meticulous planning, Mr Kgadima explains that “in the short term, the plan is to bring the Lubimbi mine into operation and make the first shipment of coal in May 2011. Using the rail link as it is today, the company should be able to transport around 1.5m tonnes a year by truck to the local railway siding at Dete and then by rail to the port at Maputo. By the time we have developed and expanded the mines to produce something in the region of 10m tonnes of coal a year, the railway line should be ready to handle such volumes.”

Lontohcoal’s recent strategy has been to look to the east in response to the economic realities of the 21st century that global future growth lies in Asia. In this regard, the company has established solid partnerships with companies in China and Hong Kong. This is extremely important as the commercialisation of Lontohcoal resources requires partnerships with established companies with requisite financial resources and worldwide networks.

Despite the fact that Lontohcoal is a relatively small emerging miner, it has already accomplished a lot in a short time. It has invested considerable sums of money to develop its assets in South Africa and Zimbabwe.

The company is thinking big and is planning to become a continental player. Mr Kgadima emphasises that since the company’s launch, a number of South African private investors have come on board and that from the beginning of 2010 the focus has moved to wooing Africans to take ownership of the company. “At the moment we have 173 shareholders and their shares are unencumbered, which is a big plus for us as the South African black empowerment experience has been an unpalatable one where shareholders find themselves in a lock-in situation that makes a mockery of empowerment.”

The success of Lontohcoal will not only benefit its shareholders in South Africa, it is turning out to be a vehicle to change the lives of thousands of people in, inter alia, Zimbabwe, South Africa, Mozambique, Zambia and the DRC. The infrastructure that the company is going to help develop in Southern Africa will have a positive impact on the fortunes of many Africans seeking a better life. Lontohcoal will definitely make a worthwhile contribution to the economies of other African countries where it does business.

Although Lontohcoal is a South African company, its vision is to become a major player in Africa in a quest for global conquest. The mission is to create a truly successful African energy company with the motto ‘Energy Supermarket to the World.’ The listing in Hong Kong in 2011 is a crucial milestone in the development of the company. “This is a very important move for us,” says Mr Kgadima. “It will give us access to the Asian investment markets and enable us to raise the $500m funding that we will need to develop large scale anthracite, coking and thermal coal mines. With all the actions we have taken, we believe we have positioned ourselves to become a large-scale mining company in the next few years.”

Project finance success for NCB

Posted on January 5, 2011 by

Compared to the relatively “mixed” experience of global markets, Saudi Arabia has enjoyed stability and growth in economic performance during 2010. The economy and stock market has outperformed other countries in the region which reflects customer and business index confidence in both the regulatory handling of the economy and the general financial health of business across The Kingdom. The Government’s $400bn injection into the economy over the course of five years has resulted in a number of major infrastructure projects being financed and the effects of this is already working through the system. Indeed, NCB has secured a number of leading project finance mandates in 2010 and this has helped establish us as the number one project finance institution across the Gulf region.

More lending is also working its way through the economy and banks are being encouraged and are responding to the need to support businesses, large and small, with their growth plans. Indeed, 2010 has been a record year for NCB’s Corporate Banking Sector in terms of lending to our customer base. This reflects both our appetite to support Saudi business and our robust financial capital and liquidity position.

Indeed the relative strength of The Saudi Economy has seen many customers adopt a “Flight to Quality and Safety” in their financial approach and planning with significant growth in loans and deposits being experienced.

This is certainly the case at NCB and we put this customer “vote of confidence” down to our ownership, the strength of our financial performance and the resilience of our core franchise.

Economic challenges
There still remain risks in the system both internationally and domestically. Abroad, the fundamental core issues of unemployment, budget deficits, sovereign debt, political compromises and the constant media speculation on double-dip scenarios in economic indicators all combine to ensure that challenging times lie ahead and no country or region can be complacent about the future. Domestically, the key challenges for the banks are a low interest rate environment and a less than vibrant capital markets backdrop. These factors ensure that revenues will continue to be under pressure in 2011.

At NCB, we believe we are a portfolio of businesses and that being pro-active – we have the ability to quickly move on opportunities that present themselves and leverage our financial performance. We have done this in 2010 and will do so again next year.

International expansion
The Saudi banking sector is still very profitable and competitive. NCB has a market leading position in a number of key business lines but we never take our position for granted and treat all competition with the utmost respect.
We concentrate on our own performance and how we can make things better and that is why we place a great deal of importance on the customer experience, service quality and our investment in people. We believe that allied to our brand franchise – these areas differentiate our performance and continue to make NCB the leading Bank in Saudi Arabia.

Internationally, our majority shareholding in Turkiye Finans (acquired in 2008) continues to perform well. Turkey continues to be an emerging economic success story and our presence in the country can only be mutually beneficial moving forward.

NCB continues to assess potential future geographic expansion opportunities but they have to be right for our franchise, bring value to our shareholders and fit with our strategy of becoming the premier financial services group in the region.

NCB in 2010
NCB has performed well in 2010 and we have grown market share, attracted more customers to our business and enhanced the health of our core business.

Our balance sheet continues to be strong, service quality indicators are positive and key business relationships have deepened thus generating increasing revenues and better understanding of customer needs.

Retail distribution has grown, consumer finance has benefitted from the new mortgage product and treasury services in volatile international market conditions have been well sought and valued by customers. Corporate banking has enjoyed an impressive year and will be a key component of our 2011 growth plans.

Islamic banking performance
2010 has been about reinforcing NCB’s strong leadership and commitment to Islamic Banking. A leader in the provision of Islamic Investment Products, NCB launched the world’s first Shari’ah Compliant Real Estate Fund and was the first Saudi bank to provide its clients with a wide range of Shari’ah compliant funds. As a result, NCB is today still the kingdom’s largest Shari’ah compliant fund business and the world’s largest Shari’ah compliant asset manager. In addition, NCB developed and offers the first and largest listed Shariah equity fund in the world and the capital preserve fund is used by many leading financial institution worldwide.

Our ongoing drive in retail distribution growth means that we are still one of the leading providers of Shari’ah compliant products to customers. In the corporate sector, our project finance support of key infrastructure projects in 2010 has overwhelmingly been done via Shari’ah Compliant product and this has been a source of great pride and achievement to us.

Electronic distribution channels
Providing customers with new ways to do business with us has seen a rapid increase in our “e” capability across the NCB Group. In retail, corporate, investment banking and consumer finance we have invested in new technology and systems that now mean that over 80 per cent of transactions are now conducted by our two million plus customers through alternative delivery channels. At the same time, our 282 branches across the kingdom continue to provide quality service and access to banking for many of our customers both in main centres and remote locations.

Sustainability
Our strategy on sustainability focuses on people, profit and planet. As the first company in Saudi Arabia to produce an internationally accredited sustainability report in 2008 and the winner of The King Khaled Award for Sustainability and Business Excellence in 2008 and 2009 – NCB firmly believes that building a sustainable company that supports its economy, society, people and environment is of paramount importance.

As a financial services company our carbon footprint is relatively small but we believe that we can and should endeavour to act on what we can influence within our own organisation such as re-cycling, printing, water consumption and energy usage. We also can help raise awareness through our leadership position on the issue and we shall continue to pursue this across our diverse range of stakeholders.

Our objectives for 2011 are to continue to be financially resilient, prudent in decision-making, grow our core franchise, develop our people and at all times manage risk in an appropriate and responsible manner.

Abdulkareem Abu Al-Nasr is CEO of National Commercial Bank of Saudi Arabia

BESI targets securities takeover

Posted on January 5, 2011 by

Part of a 140-year-old banking group, BESI believes that it is vital to develop and maintain long-term relationships with its clients. As such, BESI has developed a multi-product approach which includes sector, industry and geographic specialisation.

BESI’s core product areas are: M&A, Project Finance and Securitisation, Acquisition Finance, Capital Markets and Private Equity products.

BESI, over the few years, has developed a significant international franchise, building its presence in the UK, Spain, Poland, the US, Brazil and Angola. BESI, like its parent, is committed to expanding its international activities, based on selective opportunities.

The Bank’s international strategy is focused on markets with either cultural, trade or historical links with Portugal.

BESI’s feels confident of the success of its overall product and market strategy, having achieved its highest ever consolidated income of €229m in 2009, a 20 percent increase on 2008.

Capital markets
Over the past few years, the Bank has built a sizeable capital markets business, leveraging its extensive experience as Portugal’s leader in privatisations and capital market placements generally.

In 2009, over 60 percent of BESI’s banking income was generated outside Portugal, of which 35 percent from capital markets. Given the resurgence of capital markets activity globally, the Bank believes this will be one of its key areas of growth.

The Bank recently acted as a lead manager for the Portuguese Government’s 10-year €3bn benchmark bond, which generated a total demand of €13bn. The Bank’s participation in this successful transaction helped secure confidence in the European bond market and also re-emphasised investors’ long-term belief in the strength of the Portuguese economy.

Critical to the expansion of the business was the access to an international distribution platform. In 2010, ESIB announced the acquisition of 50.1 percent in Execution Noble Holdings Ltd (EN) to provide a Tier 1 capability distribution in equities, derivatives and expanding into fixed income in London, New York and Hong Kong.

BESI will therefore have access to an established large and mid-cap pan European secondary equities and research business. In addition, Execution Noble includes a highly rated Indian research product which will combine neatly with ESIB’s differentiated emerging market offering, built around Brazil, Poland, Angola (expanding into Africa) and now adding India and Hong-Kong.

M&A growth and development
M&A has also been a vital part of BESI’s product offering. BESI once again was nominated for Euromoney magazine’s ‘Best Bank in Portugal’ award for excellence, in addition to the ‘Best Bank for M&A Advisory in Portugal’ Real Estate Award this year.

As global economic recovery gathers pace and as cross-border activity between Iberia, the US and Latin America increases, M&A opportunities will continue to emerge and BESI is well placed to position itself competitively in this space.

Given the globalisation of the Portuguese economy, the Bank is also building an international network to ensure that capital-exporting markets can be made available to all its clients.

In the same way that BES, its parent retail bank, has adopted the South Atlantic triangle of Iberia-Brazil-Africa as a focus for its operations, BESI has followed suit, expecting this region to be a significant area of growth for the Bank.

Project and acquisition finance
BESI is a global player in project and acquisition finance in the renewable energy, infrastructure and transportation finance sectors. There are a growing number of financing opportunities, related to public-private partnerships, for key infrastructure projects that are less dependent on global growth. BESI’s powerful presence in emerging markets then gives bank full access to what they believe will be a strong deal flow.

BESI cites their successful commercial banking operation in Angola as a perfect example, as the country has experienced an economic renaissance since the end of the war in 2002.

Following BES’s success in the area, BESI is also supporting a new direct presence for its investment banking operations in Luanda, which is currently underway.

Geographic strengths
Over the last ten years, BESI has invested in international expansion, leveraging a long-standing leadership position in all key investment banking product areas in its domestic Iberian market, with its depth of knowledge of certain emerging markets.

The Bank now offers innovative financial solutions across three continents: Europe, the Americas and Africa.

The Group has had a presence in Brazil for over 30 years, and BESI now has nearly 200 professionals based in its São Paulo office, offering a full range of investment banking services, complemented by asset management, private banking and private equity activities.

BESI has over time leveraged on the close relationship it has with its Iberian clients that started to expand to Brazil, among which we find several of the major Portuguese companies: Portugal Telecom, EDP, Brisa. We highlight the M&A advisory to Portugal Telecom on the sale of its Brazilian subsidiary Vivo – the largest M&A transaction in Brazil in 2010 to date. BESI has also been growing its local footprint, with an increasing involvement with Brazilian companies.

BESI’s focus on Brazilian players that have business relationships and/or are expanding into Europe and Africa, enables the bank to leverage on the BES Group’s presence in these continents, as through the latter BESI also has access to a differentiated African network including Angola, Mozambique, Libya, Morocco, Cape Verde and Algeria.

After the success of the Banco Espirito Santo Angola operation, BESI has applied and is waiting for approval to open its own branch in the country.

The North American operation have also been expanded with the opening of a representative office in Mexico, a joint project with BES, which will support business development efforts for the banks’ Advisory, Global Trade Finance, Project Finance, Corporate Finance, Treasury and Capital Markets services.

This expansion will strengthen the Bank’s ties to Latin America, enabling it to more effectively provide its clients with access to the growth prospects of the region.

The opening of this new office is integral to the development of global banking operations for both BESI and BES, serving as a hub for business development in Central America and the Caribbean Basin.

‘One stop shop’ Polish operations
The flow of Portuguese companies into Poland and BESI’s established experience in infrastructure and renewable energy project finance, led BESI to set up operations, originally through a joint venture in 2005, and from 2008 through its own branch, in Warsaw.

In 2008, BESI launched its own local brokerage activity, which has given the branch the chance to develop a local ‘one-stop shop’ strategy.

In terms of M&A, in 2010, BESI supported the purchase of a Polish construction company by a Lithuanian buyer. BESI also participated in the financing a motorway construction company, and was part of the Project Finance consortium for the production of a 120 MW Margonin windfarm, in the north west of the country, for EDP Renewables.

In terms of Acquisition Finance, BESI advised on the financing of the purchase of a school books’ company and is advising a consortium in the privatisation of a major Polish utility.

With the help and backing of a strong international investment bank, present in the major international finance centres, BESI is taking advantage of the current Polish economic momentum and offering a ‘one stop shop’ service to local businesses.

An award-winning New York branch
With New York being the gateway to the world’s financial markets, BESI felt the importance of having a branch in this city. The New York branch concentrates on wholesale banking, mainly in the US and Brazil.
Less than two years since its doors opened, the New York branch has already accumulated a number of significant achievements, including ranking as number one Bookrunner for Syndicated Loans in 2010.

Also, despite the current adverse market conditions, in 2008 the Branch achieved a 223 percent YoY in results, reinforcing its role in the development of the BES Group’s international strategy as a whole.

The launch of the New York office was in fact split into two, with the first half of the year focussing on identifying strategic clients and transactions in North America. The bank concentrated on renewable energy sector and made social infrastructures the priority in Canada.

During the latter half of the year, New York widened its focus of activity, including transport and more typically traditional energy sectors, and also expanded its geographical reach to the Spanish-speaking countries of Latin America.

BESI’s recent expansion moves
In February, BESI announced an offer to acquire 50.1 percent of Execution Noble, a London-based pan-European securities distribution platform. For BESI, Execution Noble provides a top quality international distribution platform and investment banking team, allowing it to operate through the key financial markets of London, New York and Hong Kong.

It also enables it to establish an enlarged international securities business, leverage its primary and secondary fixed income and equities presence in Iberia and its primary origination capabilities in Europe and Emerging Markets, in particular Brazil and, increasingly, Africa.

The combination of BESI’s Iberian and emerging market banking expertise and Execution Noble’s distribution capabilities should allow the Bank to become an international reference player in investment banking. With offices across the world in Lisbon, London, Madrid, Edinburgh, Dublin, Paris, New York, Mumbai, Hong Kong, Sao Paulo and Warsaw, the joint headcount will be close to 1,000.

We expect continued recovery of leading economies in 2010, albeit at different paces, and with varying risk factors. Within this context, BESI is confident of its growth strategy – developed on a mix of ambition and prudence.

For more information contact Tara Jones, Head of International Capital Markets
Tel: +351 21 21 330 2175|; E-mail: tjones@besinv.pt

Qatar to soften oil and gas dependency

Posted on January 5, 2011 by

While several countries in Europe and the Americas struggle to leave recession behind, many of the resource-rich economies in the Middle East are enjoying unprecedented growth rates. Contained within only 11,500 sq. km of land, for example, the small peninsular nation of Qatar has the world’s second highest per-capita income and the second fastest growing economy.

With oil and gas accounting for over 50 percent of the country’s GDP, 85 percent of exports and 70 percent of government income, Qatar’s economy did feel the pinch of the latest global economic meltdown — when growth in GDP slowed from an estimated 11.7 percent in 2008 to 9.5 percent in 2009.

That trend is expected to be reversed in the current financial year as global demand for hydrocarbons increases. Yet despite having sufficient proven oil reserves to meet current output levels for at least another 37 years, the Qatari government has embarked on an ambitious plan to diversify the country’s future economy away from its dependence on oil and gas.

“There are many different opportunities for investment in Qatar,” explains Shahzad Shahbaz, CEO of QInvest. “Clearly, energy and energy-related industries will remain a significant opportunity, but there will also be huge investments in infrastructure to build airports, roads, power, sewage and water facilities. The government is also promoting Qatar as a financial centre, particularly in asset management and insurance, and a longer term objective is to diversity the economy into education, health, science and technology, sports and culture; and to create a knowledge economy through strong research and development capabilities. There is a lot happening in this country.”

QInvest, Qatar’s largest investment bank, was licensed by the Qatar Financial Centre Authority in April 2007 with authorised capital of $1 bn. In three short years it has grown to employ over 130 employees with investments in the region and also internationally.

Timing is everything. Although the world’s economy was looking bleak for investors, the turmoil in financial markets in 2008/9 meant that many talented individuals in the finance sector were displaced. With his ambitious strategy backed by a high growth economy, Shahbaz had a competing proposition and was able to attract many top quality individuals to the firm. “I think we have a good mix of international and regional experience on our team,” he says.

“We see that as one of our key strengths.”

His enthusiasm for doing business in the region, which QInvest defines as the Middle East, Africa, Turkey, South Asia and parts of South East Asia, is well founded. With a relatively young population, the region has a growing workforce and limited pension liabilities. Governments in the region are turning their attention to the huge capital resource available to them for the development of infrastructure, creating investment opportunities on a large scale.

Within this environment, the development of sophisticated regional investment banking services has been relatively slow, so Shahbaz sees opportunities for growth in his sector being disproportionately high even against the high growth rates enjoyed by the rest of the economy.

This prosperity and the investment opportunities in the region are naturally attracting the major global banks but, according to Shahbaz, these are mainly interested in the top end of the market. Beneath that top tier there is a large sub-market of regional suppliers and investors that is hungry for business. “The global banks will always be here and doing business in this region,” he notes, “but there is also room for a well sponsored, well capitalised regional bank with good quality people and strong governance.”

But while QInvest is clearly focussed on developing its business and being relevant to clients and investors within its defined geography, the bank also has part of its sights firmly pointing outwards. Believing that linkages into international markets will enable them to provide better investment opportunities and services to their regional clients, QInvest has already acquired a significant holding in two financial services businesses outside its region.

The acquisition in 2009 of 44 percent of Panmure Gordon, a London based investment banking firm with offices and subsidiaries in the US and Europe, gives QInvest important linkages into the major capital centres of London and New York. The company’s longer term vision, which anticipates huge opportunities in the emerging markets of Asia, is behind its second major investment in early 2010 of a share in Ambit, a leading investment bank based in India.

“Our vision is to develop an emerging market strategy which we can then link into the major financial centres in Europe and the US,” explains Shahbaz. “Other than the major global investment banks, there are not many others who are doing this successfully or effectively.”

In addition to geographic reach, each of the two investments brings good strategic fit in specific business areas. Panmure Gordon has a strong brokerage business which complements the evolving brokerage activity of QInvest, and it provides a network of distribution centres in the European and American markets. The investment in Ambit not only provides QInvest clients with access to opportunities in the high growth Indian market, it enables QInvest to benefit from that growth by gaining access at an early stage.

Solid foundations
Being an Islamic investment bank, QInvest operates within the investment guidelines set out in Sharia’a law which proved robust through the crisis.

Islamic finance does not, however, prohibit an investor from realising a return. There are many Sharia’a compliant ways to construct a transaction which will be able to extract a return, including profit and loss sharing or the sale and buy-back of assets. “What you can’t do is finance something for purely speculative purposes or something where there is no underlying asset,” Shahbaz observes. “That is the strength of Islamic finance. If you look at some of the problems that caused the recent international financial crisis, they were caused by speculative lending where there were no underlying assets.”

Increasing numbers of non-Islamic companies are accessing the benefits of Sharia’a compliant investments. As more people come to understand instruments like the Sukuk, a bond structured in the Islamic manner, organisations raising capital through Islamic structures gain access to a broader pool of investment capital, since both Islamic and non-Islamic investors can participate.

QInvest provides a full range of investment banking, investment management, brokerage and wealth management services to its clients. In addition, the firm has its own private equity strategy which sees it building the beginnings of an investment fund. Initially the investments are being made directly from QInvest resources but Shahbaz expects to get other investors to participate.

The first two investments for the fund were made in 2010. In April, the company acquired a 40.8 percent stake in Intercat Hospitality and Butlers Dry Cleaning and Laundry Services (the “Group”), one of the UAE’s leading outsourced business services companies. “These sectors are developing rapidly and Intercat and Butlers are the leaders,” comments Shahbaz. “We invested in them because the company has very good management and a business in this sector will grow in this region as infrastructure grows.”

More recently, QInvest acquired a 28 percent stake in Asian Business Exhibition & Conferences Ltd (ABECL), India’s leading exhibitions and conferences organiser. “We see India as a high growth market and this company is the market leader in this sector,” says Shahbaz. “This investment fits well with our strategy of supporting well-managed companies with strong growth potential in the MENASA region, and demonstrates our confidence in the Indian economy and our appetite to deploy capital in the country.”

With its wealth of talent and international reach, QInvest is ideally placed to take a leading role in the development of the communities in which it operates. As part of the company’s corporate social responsibility commitment, QInvest has developed a programme of activities that includes funding for a range of charitable, educational, social, cultural and sporting organisations and events. Among these is the annual Qatar Global Investment Forum, the second of which was recently held in Doha. The event attracted over 350 delegates from 30 countries keen to share some of their latest thinking on investment strategies in Qatar, the region, and more internationally. Closer to home, QInvest has set up the QTalent programme; that consists of Qatari Development Programme (QDP), Graduate Development Programme (GDP) and Internship Development Program me (IDP); for spotting and developing high potential talent who will form the future of the growing finance industry in Qatar.

With all of this activity taking place in less than three years of starting business, some might consider it a bit premature to be thinking of realising the firm’s value in the market, but the QInvest team have that on the cards as well. “It is very much in line with our initial investment proposition that we offered to all those who backed the bank,” Shahbaz points out. “An IPO is very much on the agenda but the timing is still undefined. Definitely not before the end of 2011; probably sometime in early 2012, but it all depends on how we are progressing with the implementation of our strategy, and the market conditions at the time.”

Export credit guarantees

Posted on January 5, 2011 by

At issue is a little known agreement between the US and the EU dating back to the 1980s determining which airlines can access export credit guarantees – in essence a cheaper form of financing than commercial bank loans.

While originally designed to encourage plane makers Boeing and Airbus to create manufacturing jobs – by supporting sales to airlines in countries where political risk meant commercial bank loans were unavailable – its scope has widened in recent years, and western airlines are claiming the market has become distorted.

Central to this has been the so-called ‘home country rule’ – a verbal understanding between the US Ex-Im Bank (the US government’s official export credit agency) and its UK, French and German counterparts – that prevents support for purchases of Boeing and Airbus aircraft by companies based in any of the four countries concerned, as well as Spain.

US and European airlines have recently been crying foul, arguing the cheaper financing available to their (principally) foreign competitors has been exacerbated by the recent downturn in the business cycle and enabled the latter to build-up their fleets more efficiently. Complicating matters further has been the growth in the number of open skies agreements giving foreign airlines ever greater access to US and European markets.

So seriously is this issue being taken that in August James May, President and CEO of the Air Transport Association (ATA), wrote to US Treasury Secretary Tim Geithner, noting that over the decade 2000-09, the US Ex-Im Bank provided guarantees backing $45.7bn in financing for more than 800 large civil aircraft – more than the mainline fleets of every individual US airline. In financial year 2009 alone it made $8.6bn available to support sales of 143 aircraft to 17 foreign airlines and five leasing companies.

The level of US Ex-Im Bank support has been roughly matched by credit supplied by the export credit agencies (ECAs) of the UK, France and Germany – all nations where Boeing’s competitor Airbus has a presence. UK credit agency ECDG alone announced financing for Airbus aircraft amounting to £6.32bn from 2000-08, or over $9.6bn at the then exchange rate.

Unintended consequences
The ATA estimates that subsidised aircraft financing by the Ex-Im Bank has added approximately 17 percent to the capacity of Ex-Im financed carriers on US international routes compared to the level these carriers would fly in the absence of such guarantees. As a result, foreign carriers with Ex-Im subsidised financing have taken market share from US airlines, reduced employment at US carriers by more than 6,000 jobs and caused income losses of over $500m annually, it claims.

As Mr May puts it: “The damage caused by subsidised financing is exacerbated during declines in the business cycle because ECA credits and guarantees immunise borrowers from market conditions.’’

He added that during the recent downturn, US airlines cut capacity by eight percent and were forced to lay off thousands of employees; yet large aircraft production remained at record highs and the large aircraft market grew by over 10 percent.

In addition he noted that in 2009, when Delta Airlines and Dubai-based Emirates Air were each seeking financing for three Boeing 777 aircraft, Emirates, through Ex-Im Bank support, was able to obtain its financing at an interest rate of 3.47 percent, compared with 8.11 percent for Delta.

Figures show the top five largest airline beneficiaries of US Ex-Im guarantees from 2000-09 were: Air India ($3.94bn), Ryanair ($3.81bn), Emirates Airlines ($2.87bn), Korean Air ($2.51bn) and Thai Air Asia ($1.68bn).

China Airlines ($1.50bn) was ranked seventh. The top 20 beneficiaries received a total of $30.0bn of guarantees; total US Ex-Im came to $44.4bn, while total European Ex-Im was $44.0bn.

The data, compiled from information available in the annual reports of US Ex-Im, assumes European export credit financing was approximately equal to US Ex-Im financing over the same period.

Meanwhile, in its document “Request for Level Playing Field in Aircraft Financing,” the Group of Airbus Home Country Airlines estimated the annual financing advantage provided by export credit guaranteed financing at $4.2m per annum on the purchase of an Airbus A380 financed over 12 years.

Responding to more general criticism about airline subsidies, Emirates, which has raised $22bn to date for aircraft financing purposes, counters it has always obtained funds on a commercial asset-backed basis and that no financing has been obtained from Investment Corporation of Dubai (ICD) or the Government of Dubai, at concessional rates.

“Export Credit Agencies are a legitimate and internationally accepted support mechanism to boost manufacturing sectors and exporters in Europe and the US,” Emirates said in a statement. “Emirates, like many other airlines, uses ECAs as part of its broad financing structure. EU/US export credit agencies have supported just over 20 percent Emirates aircraft financing to date and are likely to remain in this range in the future.”

Yet just as Boeing and Airbus unsurprisingly seek to protect their existing turf, so they face a commercial threat in the single-aisle jets market, with Canada’s Bombardier hoping to promote its CSeries plane as a modern, more fuel efficient alternative to the ancient Boeing 737 and Airbus A320.

While there are more restrictions in place for large planes, when it comes to government backed loan guarantees to aid aircraft sales, there is greater flexibility for smaller sized regional jets.

Bombardier last year sought to have the CSeries designated as a regional jet. Boeing and Airbus in turn have claimed it encroaches on the large aircraft category. And for good reason as the Montreal-based firm is not bound by the same rules as Boeing and Airbus, giving it an unfair edge since CSeries planes could in theory be offered to a US carrier or an airline based in a country that’s home to Airbus production.

As debate rages in this particular segment of the market there is little doubt the CSeries will pose a commercial threat.

Decision time in Europe
Meanwhile, British Airways CEO Willy Walsh used a recent speech at the European Aviation Club in Brussels to hammer home the export credit finance point, claiming, like his American counterparts, that his airline’s ability – and those of some other European airlines – to fund the acquisition of new aircraft is handicapped by the more generous financing rates available to carriers from other countries, both inside and outside of the EU.

“We believe these guarantees are not operating in the way they were intended – and therefore urge the EU to amend the rules to remove the competitive distortions that have developed.”

Mr Walsh, who is also the current chair of the Association of European Airlines, said it was especially worrying to see Europe “funding the expansion of Emirates,” which is growing so rapidly some say it could change long haul aviation in the way Ryanair and other no-frills carriers have transformed short haul flying.

“It’s about time Europe makes up its mind what it wants from its airline industry,” he said. “The liberalisation of the market has brought about huge efficiency benefits, a stream of product innovations, lower prices and consumer choice. Yet all along the line these benefits are being eroded by heavy-handed and inappropriate regulation in some areas, and a reluctance to tackle structural deficiencies in others.”

US and European airlines finally seem to be waking up to addressing the issue after 24 carriers, including Air France, EasyJet, Lufthansa, Virgin Atlantic, American Airlines, Delta Air Lines, United Airlines, JetBlue and Southwest Airlines, recently forged an alliance and called for a 20 percent cap on aircraft deliveries financed with ECA-backed loans, higher export credit premiums and fees to neutralise any interest rate advantage they yield, lower maximum loan-to-value ratios and restrictions on ECA-backed loans to airlines or lessors based in high-risk countries. Boeing for its part has gone on record as supporting the 20 percent cap as ‘reasonable.’

European carriers, at least, also have EU Regulation 868 as a potential fall back, given it allows for the imposition of protective duties on foreign carriers using subsidies or other forms of “non-commercial advantage” to undercut prices.

The big question though is whether US and European governments have the stomach to change the status quo – the lucrative Gulf market being a case in point. Here, Airbus has total orders of 191 planes from Emirates, 133 from Qatar Airways and 59 from Etihad Airways.

Longer term though, it will become more difficult for European carriers to have enough customers to maintain existing flight schedules to destinations such as Hong Kong, as the balance of power gradually shifts and stopover traffic increases in the Gulf at the expense of traditional cities such as London, Paris and Milan.

Good things come to those who wait

Posted on January 5, 2011 by

After the United States, China is the second largest economy in the world. It has long been recognised as the fastest-growing globally, having recorded annual average growth rates in excess of 10 percent over the last quarter-century. In Q2 2010, China’s economy was valued at $1.33trn, and it is estimated that by the end of the year the nation’s total GDP will be approximately $5.7trn. Given these impressive figures, for many years global financial institutions have been holding their breath, waiting for an opportunity to tap into such a potentially lucrative market.

Their wait has been a long one. It was in 1978 that investors first pricked up their ears, when China began to make wholesale reforms to its economy in order to address its burgeoning social and economic problems. One key aspect of such a restructuring was that – for the first time in the 20th century – the government began to encourage foreign trade and permit foreign direct investment (FDI) in the areas of the country where it was most needed.

Following this, throughout the 1980s, the number of regions that could accept FDI grew and China began to adopt some ‘western’ principals, particularly in the fields of legal and financial infrastructure, which were key to handling FDI.

Recent developments within China’s financial infrastructure have left the door ajar for international banks, wealth managers and fund management firms to make their moves.

Banking
The Chinese banking sector has traditionally been dominated by four institutions: the Industrial and Commercial Bank of China, the China Construction Bank, the Bank of China, and the Agricultural Bank of China. Today these banks hold between them more than half of China’s total banking capital.

However, change is afoot. Recent years have witnessed a glut of high-value IPOs, which have seen the top five Chinese banks raising almost $60bn. Capping this trend, in July this year, the Agricultural Bank of China achieved a $19.2bn public listing, valuing the company at approximately $128bn – bigger than the likes of Goldman Sachs or Citigroup. These listings have allowed international investors to take significant shareholdings in the Chinese banking industry.

Of course, doing business in China has often been fraught with difficulties, with excessively high minimum capital adequacy requirements proving prohibitive for foreign firms. But, in 2001, upon accession to the World Trade Organisation, the Chinese government consented to the creation of a more level playing field for foreign banks.

Whereas some British banks have been well established in China for some time – HSBC and Standard Chartered have managed operations for over a century – these have been the exception to the rule. The figures show that today overseas banks are taking full advantage of this new freedom. According to figures published by UK Trade & Investment (UKTI), between 2003 and 2008 foreign investments in Chinese commercial banks stood at $783m, and the number of Chinese banks with foreign capital grew from just five to 32.

And the expansion has continued. To date, foreign banks from 12 countries have established a total of 28 foreign-funded banks, in addition to two joint-ventures and two overseas-funded finance companies. In total, 196 foreign banks from 46 countries have set up 237 offices in China.

The boom in commercial and investment banking has already begun, but there remains a huge opportunity in the localised retail banking sector. In 2007, HSBC was the first bank to receive approval from the China Banking Regulatory Commission to establish a bank in rural China, and although the hook has not yet caught, given China’s eye-catching demographics, many others are sure to follow.

Fund management and private equity
The fund management industry in China has played an increasingly important role with the Chinese economy over the last 10 years. Formally established in 1998 when the government launched the first batch of six fund-management firms, China is currently home to some 60 fund management organisations, bearing total assets under management of some Yuan Renminbi (RMB) 2.3trn (around $350bn).

The private equity (PE) industry, as a sub-sector of general fund management, is also in overdrive. A report published in August by M&A advisory firm China First Capital, details how China is flooded with PE capital ready for investment, having raised over $50bn over the last four years.

Driving this innovation is the Chinese government, which in 2007 pushed through a Partnership Enterprise Law, effectively imitating a western LLP structure and thus allowing the development of PE and venture capital investment into China. Steps have also been taken to ensure a sound and accountable professional services environment, allowing for the development of a supporting legal, accountancy and corporate finance services community.

The enormous flow of capital is not looking to dry up. As recently as August this year, CDH Investments, one of China’s leading PE firms – with $4bn of committed capital – closed its fourth investment vehicle on $1.46bn.

Furthermore, according to Deloitte’s annual Private Equity Confidence Survey, published in September, over three-quarters of respondents expected levels of PE investment to increase over the next 12 months, and not one respondent predicted it to decrease.

Another big attraction for foreign investors is sure to be the forthcoming launch of what will prove to be the largest pool of investment capital within the global PE industry. With assets of close to $120bn, China’s National Social Security Fund is mandated to commit over $3bn a year in new capital for PE investment in China.

Currently the fund is in the process of selecting suitable private equity fund managers and fund-of-funds to make investments on its behalf.

Given the government’s commitment to supporting the industry and with such prizes at stake it is no surprise that international funds are flocking to China, hungry for a piece of the pie.

However, they now have a great deal of competition on their hands. Until now, many domestic Chinese PE funds have operated on an opportunistic basis, aiming to make a ‘quick flip’ of an entrepreneurial business into an IPO, but without fully grasping the long-term effectiveness of a sustainable PE investment model.

But now, many Chinese funds have become enlightened and are contending on a credible – if not financial – level with the international funds. One of the key ways they are gaining a competitive advantage is by setting up RMB-denominated funds, which are able to invest more quickly and effectively into local businesses than foreign USD funds. Furthermore, their understanding of the dynamics of their home market often surpasses those of funds that fly in from London or New York. In short, local players have the advantage of speed of execution and local knowledge.

As testament to this, Deloitte’s survey states that “2010 will be remembered as the year the RMB funds found their pace and became a major factor in China’s capital landscape.” Also according to the report, “In the first half of the year, some 32 new PE funds were set up, 26 of which were RMB denominated.”

However, the foreigners are fighting back. It is for this reason that it is widely believed that Carlyle, one of the largest global PE players, is looking to launch a RMB fund, and Reuters reports that major US investor Blackstone has this year made a further three additional commitments to its $732m RMB-denominated fund.

As the Deloitte report also points out, “Foreign funds have encountered regulatory and market challenges in meeting their RMB funding goals.” Nevertheless, foreign-run RMB funds have raised a disclosed RMB 23.8bn ($3.5bn) to date.

All told, there is a massive opportunity for international funds to make their move on the sizeable Chinese PE playing field. However, in order to play their part they will need to act fast to compete with the growing masses of local funds and – perhaps more importantly – get to grips with an unfamiliar environment.

Wealth management
According to Celent, a research consultancy firm focused on the financial services industry, wealth management services provided by Chinese banks have shown impressive growth in recent years and have an even greater potential going forward. In 2007, for example, the size of the market for individual wealth management in China was over $350bn – more than double that for the year 2000. Furthermore, this figure is expected to double again by 2014.

Celent’s research reveals that at the end of 2007 China boasted almost half a million individuals with a net worth of more than $1m – an increase of over 20 percent from the previous year. Also, the number of ultra-high net worth individuals (those with assets exceeding $30m) now exceeds 6,000.

According to UKTI statistics, the wealthiest one percent of Chinese households own more than 70 percent of the country’s total personal wealth. Over the past five years the astronomic rise in the number of millionaires has meant that China now holds the global rank of fifth place in terms of the number of millionaires. All told, China’s richest people have an aggregate wealth of more than $2trn.

The concentration of wealth among such a small proportion of the population makes China a huge market for wealth management services – in fact the second largest in Asia outside Japan.

Unsurprisingly, there is a sizeable opportunity for international firms to take a foothold in China’s wealth management market, and there are opportunities to exploit such a market.

Economists have long commented that many of the local banks lack a sufficient portfolio of investment products to cater for the increasingly affluent class of Chinese high net worth individuals. Also, as investments through private structures such as venture capital trusts are not fully available to the wealthy, the best that they can achieve is high interest rate accounts offered by local banks. As such, there is an enormous opportunity for foreign private banks – especially those that have lost clients in their home markets thanks to cautionary measures caused by the recession – to enter the market with their full portfolio of products and services to cater to the needs of private banking customers.

Potentially lucrative
Over the past few years China has experienced a continued expansion and diversification of financial players seeking to take a share of the market. As the sophistication of domestic investors has improved, so too has the window for foreign financial investment widened, as many sectors of the economy have become more liberalised.

Against the backdrop of global economic turmoil, China’s economic growth remains impressive, and international investors of all kinds will continue to find China hard to ignore – especially if opportunities remain thin on the ground in their home markets.

Gold up; emerald down

Posted on January 5, 2011 by

Ireland’s property market crash has exposed years of reckless lending and has forced the government to nationalise large parts of the banking industry, leaving the taxpayer with a bill of €50bn or more to clean up the mess.

The scale of the disaster is unprecedented in Ireland. By 2008, some 40 percent of Irish banks’ loan books were related to real estate, equivalent to some €160bn. Much was lent at high loan-to-values and when the market crashed, borrowers swiftly saw equity wiped out, leading to breaches of debt terms. The banks, in effect, became the owners of so many billions of euros borrowed against poor quality property and land that their own balance sheets were unlikely to cope.

And that’s not all. Morgan Kelly, a professor of economics at University College Dublin who predicted Ireland’s property collapse, is forecasting that a new wave of toxic debt related to domestic mortgages could sink the country entirely.

He believes that Irish households are stretching themselves to the maximum to pay mortgages they cannot afford because of the stigma attached to default. “That will change,” Professor Kelly wrote in the Irish Times in November. “The perception growing among borrowers is that while they played by the rules, the banks certainly did not, cynically persuading them into mortgages that they had no hope of affording.”

Professor Kelly’s comments have been seized upon as evidence that the country’s financial woes will get worse before they get better. He says the cost of the bank bailout, estimated at €50bn, will be far higher than the government has admitted, with losses at Allied Irish Bank and Bank of Ireland equalling those of toxic bank Anglo, leaving the taxpayer with a €70bn bill – nearly 50 percent higher than estimated. And there are concerns that the wrong banks may have been supported. While Allied Irish and Bank of Ireland have received billions in state aid to cover their dud loans to bankrupt construction tycoons, Irish Life & Permanent has received no bailout help, even though it is the most exposed to Ireland’s depressed market for residential property.

Bleak expectations
The Irish banking crisis has also been compounded by revelations that banks failed to take out insurance to protect themselves against losses on their mortgages, increasing the cost to taxpayers of rescuing them. Irish banks used to ask customers to take out compulsory mortgage insurance but this practice was abandoned at the height of the boom by most lenders. There is about €148bn of mortgages outstanding in the Irish market.

Professor Kelly was vilified when he warned of a property crash in 2007, earning the nickname “Dr Doom” for his gloomy – but accurate – predictions of economic woe. Now he has painted an even bleaker picture of the future and suggests that hundreds of thousands of people will go into mortgage default. “The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War,” he said, in reference to public defiance
in the 19th century when tenants refused to pay their rents.

Yet the country seems ill-equipped to deal with the problem, and some critics point out that the European Central Bank’s decision to pursue policies that favour Europe’s economic powerhouses like France and Germany, are having a detrimental effect on countries like Portugal, Greece, Spain and Ireland. The interest rates charged on the treasuries of Ireland, as well as fellow indebted eurozone members Portugal and Spain, have been rising ever since German Chancellor Angela Merkel said in October that she expected any future EU bailouts to come with new rules requiring bondholders to absorb some losses.

Economists warn that a rise in ECB base rates, potentially late next year, is the biggest threat to bank mortgage books. A rise in these rates will hit tracker mortgage holders, many of whom took out their loans in the last few years of the boom when prices were at their highest and deposits at their lowest.

The combination of bank bail-outs, government debt, collapsed property prices and a rising ECB interest rate all spell calamity for Ireland’s financial services sector and for its investor attractiveness. By the beginning of November, shares in Ireland’s banks had hit record lows and national borrowing costs had reached new euro-era highs as the government presented its latest plans for financial survival to the EU’s economic commissioner.

Furthermore, investors are shunning Ireland’s government and bank debt in expectation that the country will eventually require a bailout by the EU and International Monetary Fund, as happened to Greece in May.

The bad bank
Economists say that Ireland is experiencing by far the greatest scepticism from would-be lenders, who look with horror at the country’s projected deficit of 32 percent of GDP – a modern European record. While Ireland says it has sufficient cash until mid-2011 and has announced plans to resume bond auctions in January, its bank stocks and bonds have been dropping since Finance Minister Brian Lenihan announced plans at the beginning of November to slash £5.16bn from its 2011 deficit – double his previous target. Lenihan said he wants to cut the 2011 deficit to 9.5 percent and reach the EU’s limit of three percent by 2014. The European Commission thinks it can be done, but few others are so sure.

The government has made efforts to try to stem the crisis and to increase the flow of credit through the Irish economy. The National Asset Management Agency (NAMA) was created in late 2009 and will function as a “bad bank,” acquiring property development loans from Irish banks in return for government bonds – which may lead to a significant increase in Ireland’s gross national debt.

There are five participating institutions in NAMA – Allied Irish Banks, Anglo Irish Bank, Bank of Ireland, Irish Nationwide and EBS. The original book value of these loans is €77bn (comprising €68bn for the original loans and €9bn rolled up interest), though the current market value is estimated at €47bn as many of the loans are now non-performing due to debtors experiencing “acute financial difficulties.”

NAMA is buying the loans at an average of 52 percent discount to November 2009 values, paying an estimated €35bn for the €73bn of loans. Initial discount estimates were 32 percent.

There are up to 10 years to work out the loans, although there are goals of repayment of 25 percent by 2013 and 80 percent by 2017. It is hoped to make a profit of at least £1bn by the end of NAMA’s life.

Lenihan said the banks would have to assume significant losses when the loans, largely made to property developers, are removed from their books. If such losses resulted in the banks needing more capital, then the government would insist on taking an equity stake in the lenders. Economist Peter Bacon, who was appointed by the government to advise on solutions to the banking crisis, said the new agency has the potential to bring a better economic solution to the banking crisis and is preferable to nationalising the banks.

NAMA has caused equal measures of anger and worry in Ireland – anger that taxpayers could be saddled for years to come with debts on ill-timed investments made by property tycoons who have evaded the fallout and are still living in mansions, while there is a worry that these property loans could capsize the economy. The agency also has its critics: Nobel Prize-winning economist Joseph Stiglitz has said that the plan amounts to “squandering” public money to bail out the banks.

The agency is also likely to face criticism when deciding which schemes should be supported through new capital.

Many development sites, particularly on un-zoned land, will not be viable, and also offer no income to service interest, which means that they will be unlikely ever to cover the associated debt – not exactly the news that taxpayers and investors have wanted to hear. As much as €33bn of the land and development schemes are expected in Ireland, with another €10bn in Great Britain and €3bn in Northern Ireland. Some will be partially complete; others simply unwanted farmland standing fallow. Some observers point out that the political aspects of what stays and what goes may be heightened by the fact that many loans have personal guarantees from borrowers.

Potential opportunities
Yet besides the political sensibilities that the agency has to navigate, it is the operational side of the organisation that is causing most concern at the moment. Investors who have come to Ireland to carry out commercial property deals looking for a return over five or seven-year investment periods have given up due to the length of time it takes to complete transactions – or even get them started. One fund manager said, “We have put real estate investment in Ireland on indefinite hold.” Instead, fund managers may look at markets like France and Poland to pick up bargains.

There is little doubt that there are bargains to be had for investors who stayed out of Ireland during the boom. For example, in upmarket Booterstown in south Dublin, Irish Nationwide is selling two-bedroom apartments at €289,000 – 50 percent below prices in the same neighbourhood three years ago. Meanwhile, receiver Martin Ferris & Associates is behind a plan to sell 30 apartments at Blakes Road in Mulhuddart, west Dublin, for less than €1.9m – or €63,000 each. The Construction Industry Federation (CIF) reckons that such sales are at or below build cost, even reckoning land values at zero.

Domestic property professionals are unwilling to talk down NAMA but this is hardly surprising as the €81bn property vehicle will be by far the biggest user of professional services for a decade. But off the record, many say that NAMA is, at best, slow moving. “People are saying that NAMA is a white elephant, and like an elephant, it is proving difficult to shift in a hurry,” said one source.

A civil engineer for all seasons

Posted on January 5, 2011 by

Prasert Bunsumpun
Age: 58
Education:
Harvard Business School
MBA, Utah State University
Career highlights:
2003 President and CEO, PTT Group
2001-2003 Senior Executive Vice President, Gas Business Group, PTT Public Company

When Prasert Bunsumpun, then 51, was appointed President of Thailand’s national energy company, PTT Plc in 2003 it was yet to join the ranks of the Fortune 500 elite. By 2004, it was listed at 456. Later in 2005 PTT was ranked 373; by 2006 it had climbed more than a hundred places to reach 265; 2007 saw it at 207; PTT had reached 135 by 2008 and in August 2009, Fortune 500 magazine ranked it 118 and recently 155 in 2010 among the world’s largest companies. Under Prasert’s bold, industry-smart leadership, marked also by an intuitive politically nuanced style, PTT today is Thailand’s fully-integrated energy company with leading position in exploration and production, transmission, petrochemical, refining, marketing and trading of petroleum and petrochemical products.

So what of the man behind the company’s impressive transformation from a small, state-run enterprise to an oil and gas group with investments in Exploration and Production (E&P), refining, and petrochemicals? Now in his second term at 58, Prasert Bunsumpun is variously described as tireless, focused and adept at selling his often visionary and occasionally radical ideas.

A 1977 MBA graduate of Utah State University and an Advanced Management Programme certificate holder of Harvard Business School in 1998, Prasert Bunsumpun entered the high-octane world of petroleum products at the age of thirty in 1982, joining the then Petroleum Authority of Thailand, later to be privatised in 2001 as PTT Public Company Limited, but with the Thailand Ministry of Energy holding a controlling interest. A former director of Siam City Bank, Prasert is also known for his financial acumen and his ability to recognise an acquisition bargain.

Described by those who remembered him at the time as “quiet and determined” Prasert would not really find his stride and the opportunity to exercise his special talent for decisive leadership until he took over the helm of PTT as its president in 2003. The responsibilities of the job that involved safeguarding and developing much of the nation’s vast energy assets while balancing the often pressing demands of a volatile global energy market and juggling the necessity to play to the political balcony, require special qualities. Resilience, tenacity, a big picture mindset while still grasping the details, are all part of the mix. Add in a Bill Clinton-like ability to ‘compartmentalise’ and Buddha-like, to live in the moment, and the secret begins to emerge.

Prasert would though, be the first to point out that we’re all different and clearly there’s no one formula that guarantees success as a business leader. Whatever the complete recipe in his case though, it appears to have worked remarkably well.

His first notable recognition came in 2005 when he garnered a clutch of awards – Corporate Executive of the Year by Asia Money magazine; Asian Best CEO in Oil and Gas Business 2005; Thailand Best CEO 2005 by Institutional Investor Magazine; Thailand Business Leader of the Year 2005 by CNBC; and Best CEO of the Year 2005 by Stock Exchange of Thailand Awards 2005. There was more to come in 2008 when he shared the Oscar of the energy sector – Platt’s Global Energy Award for CEO of the Year.

In 2005 also, BusinessWeek placed PTT at the top of its list of Asia’s 50 best firms and said this about the company and its president: “with the spectre of $60-$70 oil hovering over energy-hungry Asia, a mad scramble is under way by regional oil and gas companies to lock up resources overseas and ramp up refinery capacity at home.”

“The unassuming civil engineer”, the article continued “is president of PTT Plc, a $15.7bn state-controlled energy giant that is enjoying windfall profits at home thanks to inspired management and spiraling gas and diesel fuel prices. The Bangkok company’s second-quarter profits alone rocketed 30 percent, to $449m, while sales jumped 50 percent. And no wonder, since PTT makes money all the way from the wellhead to the gas pump.

“PTT is now leveraging its supercharged shares – up 40 percent over the last year – to develop oil and gas assets from Algeria to Oman. ‘We want to have at least 20 percent of our revenues coming from international operations within five years,’” says Prasert.

The BusinessWeek article concludes, “In many ways, PTT is emblematic of the sudden fortune visited upon hundreds of companies supplying Asia with the energy it needs to stoke its growth. What sets the Thai company and a handful of other top performers apart is a shared drive to prepare the stage for future growth through rapid acquisitions while maintaining stellar profits and rich shareholder returns.”

Awards, peer and public approbation have no doubt been welcome by the PTT president and CEO. If nothing more, they suggest he must be doing something right, but what has his much vaunted ‘visionary’ leadership actually done for PTT? Even a cursory glance at the fortunes of the PTT Group during his tenure show they have improved massively. Under his unerring guidance the group now controls a vast network of interrelated companies in oil, gas exploration and production, transmission petrochemical, refining and marketing and trading of petroleum products. The Group’s revenue in 2009 amounted to $46.04bn with a net income of $1.73bn. Unsurprisingly the awards for PTT in 2009 also kept coming.

Achieving success in the high stakes and high pressure world of energy inevitably invites the “What’s your secret?” line of questioning. Prasert Bunsumpun would likely attribute his success to an overriding objective of attaining sustainable growth. To do that, he has said that he focuses on leadership development, employee competency improvement, and creating a culture of innovation. Part of that, means a strong adherence to good corporate governance and from every individual, a firm commitment to corporate social responsibility.

Prasert believes that any organisation is only as good as the sum of its parts and in his case this means ensuring transparent management practices in everything it does. Prasert has high ethical standards, values he expects of all those he works with and which are now enshrined as part of PTT’s core values and culture. Employees with a former ‘public servant’ mindset now see themselves as professionals working in a very professional organisation.

Part of this change in attitude no doubt stems from the very hands-on approach Prasert uses when dealing with, and motivating staff.

In 2009, besides monthly labour relations meetings, PTT, led by its shirt-sleeved president instigated head-to-head meetings to get immediate feedback from staff on their opinions from important strategic decisions to the more mundane matters of administration and welfare. Effective communication, believes Prasert will lead to positive relations, taking the organisation to agreed unified goals. Nothing new in that of course, but making it work in the Thai culture where the boss is generally obeyed in silence and where opinions, even when sought are seldom forthcoming, is something to be roundly applauded.

In matters of earning staff loyalty, the PTT president displays an instinctive understanding of the European notion of business democracy where everybody is equal, eats in the same canteen, and the bosses at every stage of the hierarchy are accessible and the really big boss is more accessible than most. Again this is contrary to the traditional Thai cultural mores where senior figures are not only obeyed, but expected to remain distant.

Prasert is also seen at many company functions and makes regular visits to companies under the PTT umbrella.

Further insight into the Prasert management style is seen in his reported comments on what he describes as a ‘Learning Organisation.’ “To become a Learning Organisation, we rely on human intelligence. Learning is an ongoing, lifelong process”.

Expanding on his theme of building competent and righteous members of PTT and of society, Prasert talked about the company’s core values summarised in that very apt PTT acronym, ‘Spirit’ – synergy, performance excellence, innovation, responsibility for society, integrity and ethics, trust and respect.

In a June 2009 meeting organised by Thailand’s Institute of Directors the PTT leader voiced his opinion about the right course of action in times of financial crises. “Cash is the first priority in a time of crisis and because of high uncertainty, firms have to plan for different scenarios and conduct a stress test,” he said

Prasert noted that since the eruption of the worldwide crisis late 2008, PTT had moved the quickest to raise funds from the market, totalling more than Bt100 billion thus far. “It will issue more debentures very soon just before government bonds flood out the market,” he said.

“On the other hand, it is also important to look for opportunities,” he continued. «We must clean the house, developing personnel, restructuring, consolidating and reviewing operations, while also seeking opportunities. The last crisis had helped PTT grow several times. We can grow several folds this time because we are much stronger. There are more opportunities,” he said.

“We are aiming to turn the downturn into our turn,” he said, adding “communication is key.”

One example of Prasert’s leading-by-example method is his active support of the Thai government’s Energy Industry Act that sought to promote energy security for the nation through transparency in the provision of services, fair prices for consumers and licensees, and an equitable network access for competitors, although this law would mean more regulations to deal with for PTT’s gas business.

Bold decisions when other leaders might be inclined to be more conservative are also a mark of the Prasert style. His determination to build PTT through both organic and inorganic growth led for example to PTT investing almost $5bn in expanding gas pipeline networks to double capacity to stimulate the economy, improve domestic gas development, and increase PTT’s corporate value. This was in spite of the fall in demand following the 1997 Asian crisis. Since then, the demand for gas has risen rapidly, suggesting that in five years the pipeline will be fully utilised.

M&A has also been a strong vehicle for PTT growth under Prasert. Refineries and petrochemical ventures have been acquired and restructured during down cycles and nurtured to top performing companies in their market sector. An example is Prasert’s turnaround of Rayong Refinery Company (RRC), which PTT bought from Shell during the crisis and then successfully listed. In 2007, Prasert further strengthened RRC by merging it with Aromatics (Thailand) Public Co., Ltd., to finally become PTTAR, Thailand’s largest integrated aromatics refinery. Merger master Prasert later brought NPC (National Petroleum Corporation) and TOC (Thai Olefins Co.) together to become PTT Chemical, PTT’s petrochemical flagship company. Today, the two companies generate some 40 per cent of PTT’s earnings.

CSR fundamental to ptt’s sustainable development
A fundamental commitment to CSR that sees the implementation of good governance and social and environmental practices as a priority, has long been established at PTT. Reflecting the strong personal commitment and support from the current PTT president, a comprehensive CSR programme is now in place. The importance of the active promotion of a management and employee culture that embraces a socially responsible mindset at individual level has been the hallmark of the Prasert approach to making sure Good Corporate Governance and CSR translate into sustainable development for all concerned.

Today at PTT, not only is there an extensive and far reaching CSR programme in place that stretches across all its operations, it is one marked by a carefully planned framework that meets international CSR standards of reporting to maximum practical effectiveness across all business units. The objective is to lower PTT Group risks and to satisfy all stakeholders while providing maximum benefits to the community.

A response to global warming
The very nature of its business means that PTT has a major responsibility to take its response to the complex challenges of combating global warming very seriously. At every level, PTT has shown that it is committed to systematic management of this issue from carbon footprint management, including reduction of greenhouse gas emissions, to public educational campaigns.

Wider initiatives include promising research projects such as the application of biogases derived from industrial wastewater – expected to begin commercial production in 2011 – and construction of a prototype plant for bio-hydrogenated diesel and biojet, produced from diverse raw materials.

Another notable success has been a reforestation project in honour of His Majesty the King involving more than 400,000 acres. In the area of social and community development, an excellent example of PTT’s effort in 2009 was its cooperation with the International Union for Conservation of Nature (IUCN), in supporting the Sirinath Rajini Mangrove Ecosystem Learning Center in its efforts to preserve the Pranburi estuary mangrove forests. Another highly successful project, and one which took the 2009 Platts Global Energy Award, was PTT’s Sufficiency Path Project involving 84 sub-districts in Thailand. More recently PTT joined four other companies at a major industrial park in the province of Rayong committed to lifting social and environmental standards for local communities as well as transferring knowledge and experience.

PTT president Prasert Bunsumpun said the project was designed to give an example to other enterprises of all sizes in Rayong and elsewhere. “We met and agreed to join forces. We aim to share our experience in environmental care with others. We hope this will turn Rayong into the most liveable province. Rayong will become a green industrial town, an example for other provinces in terms of sustainable coexistence of factories and communities,” he said.

FX platforms target white labelling

Posted on January 5, 2011 by

Since its inception, Squared Financial Services (Squared) has continually invested in its product offering, technology and people, as it strives to become the platform of choice among all participants in the EFX market space. Today, the results of this investment are plain to see, as Squared Financial is poised to reap the rewards of its pursuit of excellence.

Squared was founded in 2005 by its current chairman, Philippe Ghanem, and director, Georges Cohen. It is an independent, full service broker headquartered in Dublin and is regulated (and MiFID authorised) by the Financial Regulator in Ireland.

At the very beginning Squared evolved from its founders’ frustrations as professional traders. The platforms Messrs Ghanem and Cohen were using did not give them the freedom, functionality or competitive pricing that their individual styles required. The decision was made to develop their own platform and Squared Financial was born.

Since then, Squared has continued to develop and enhance its platform and after considerable investment in late 2009, its executives believe it is in an extremely strong competitive position – nimble enough to adjust to individual clients’ needs with a product to compete with the very best in the market place.

Squared’s proprietary platform, Squared Trader, provides round the clock ECN-style (variable spread) precision FX trading from execution and reporting right through to settlement. Competitive access to the world’s largest FX liquidity providers is through Deutsche Bank, Credit Suisse, RBS, UBS, Goldman Sachs, Citi, Bank of America Merrill Lynch, BNP Paribas and Nomura – with more to come. They also use non-bank liquidity providers to deliver a product appropriate to different trading styles – this, says Mr Ghanem, is one of Squared’s keys to success.

“We recognised very early on that price and depth were our key USPs in terms of product, and in order to keep them competitive we had to enter into consultative relationships with our bank liquidity providers,” he says.

“In order to enhance these relationships further it was essential that we developed a separate stream, outside of our major bank relationships, for our more aggressive order flow.”

Squared Trader users can choose from a range of multi-panel trading modules to reflect their preferences and strategies. Squared Trader has the ability to quote for different trade sizes, both in the normal quote window for the best bid/ask for a particular size and a different window is available so that the best bid/ask and the best prices for each bank at those sizes is shown.

Both spot and forward transactions are supported and the swaps window allows the user to price these via a ‘Request for Quote’ and then to execute via the online platform.

For asset and money managers there is a unique multi-allocation grid, allowing an executed trade to be split between multiple managed accounts according to allocations defined by the manager – one click trading for multiple client accounts.

They also have an Order Management System which operates similar to an exchange. As soon as an order limit is reached it is executed immediately. Also on offer is a cross currency margin netting functionality which allows clients to offset long and short positions, in different currencies, against each other, allowing the individual client to optimise their margin levels or trading power.

Throughout the trade process clients have access to trade confirmation and reporting facilities. Trades are confirmed within milliseconds as soon as they are hedged with Squared’s trading counterparty and Straight Through Processing considered a vital offering in today’s market. A variety of real time and historical reporting tools are also available, providing a complete audit trail of all executed trades.

In addition to trading and confirmation, Squared recognise the importance of the highest level of client support and service and have a 24 hour multilingual team available to deal with queries or execute trades on a client’s behalf.

There are, however, certain areas of the business that are always a concern for any EFX broker. John Miles, managing director, believes this can sometimes be the key factor that distinguishes one provider from the other.

“Whether you are providing institutional type spreads to high net worth individuals, the very best in client service and support to asset managers or user friendly ultra-fast execution on tight spreads and large volume to institutions, there are always two areas of EFX trading that can catch you out – slippage and latency,” he says.

“We at Squared recognise that unless these are eliminated from the trade cycle clients will ultimately lose confidence in the platforms functionality and to this end, this elimination remains a constant priority on the technology side of the equation.”

Major changes have occurred in the way banks provide rates in the FX market. In mid-2010 the number of prices per second (ticks) sent by banks to Squared’s servers had increased 5 fold in some instances, over the levels seen in 2008. The direct consequence of this phenomenon, if not addressed, would be a significant decline in price validity and an increase in slippage and requotes on trades. This, for some providers, has induced a lot of uncertainty among their professional users relying on automatic FX trading systems and day traders dealing with high volume per trade.

Latency is also a critical issue for all traders since it creates risk no matter where it is introduced into the trading cycle. It can be affected by a number of factors – the client’s own system and quality of internet connection, the architecture of the liquidity provider’s system and its connection, as well as the computing time of the EFX broker’s platform itself. Squared admits that some of these factors are outside of their control for obvious reasons – and hence there is a certain amount of latency that will never be eliminated – but it is continually investing in ways to reduce it to an acceptable level.

One method adopted to address this issue was the design of a proprietary trading algorithm and several trade execution modes which enabled traders to execute trades with the minimal amount of slippage. Because the market has developed and the number of ticks has increased dramatically from only a few years ago, Squared is continually upgrading to higher speed data lines from the liquidity provider to its servers and, in some cases, to its clients.

Squared’s innovative business model provides complete transparency throughout the trade cycle: no fixed spreads, streaming prices from the world’s largest liquidity providers, no speculative positions against the client and no competing with their positions. Its best of breed platform gives the end user the opportunity to see the depth of the market and enough liquidity is available to accommodate any category of client.

FX broking has developed to a very diverse and sophisticated level, with clients demanding more and more from their providers. Squared has moved progressively with this demand, continually investing in platform evolutions in order to meet client needs and those of a rapidly changing trading environment.

White labelling is one area which is experiencing dramatic growth and evidence of Squared’s professionalism and adaptability was witnessed by the recent awarding of a large deep white labelling contract in the UAE. As Philippe Ghanem points out, “the awarding of this project was testament to our ability to deliver, in record time, exactly what the client required. To win this contract against competition from some very well known larger institutions, and the professionalism of the team from inception to delivery of this, is indicative of where Squared currently stands in this market place.”

Squared recognises that it operates in an exceptionally competitive market place. As the market changes, continual evolution is paramount but the future is looking bright – after a year of investment in technology there is a renewed focus on sales, there are more white labelling projects in the pipeline, its Dublin operations are expanding, and there are plans for a London representative office in early 2011. Its “wait and see and move late” approach to the EFX market will have reaped its dividends and further success will ensue.

For more information tel: +353 1 6621913; jmiles@squaredfinancial.com;
www.squaredfinancial.com